Funding ratios for corporate pension plans increased in March on a monthly and quarterly basis, according to reports from Wilshire Associates, Legal & General Investment Management America and Mercer.
Wilshire's monthly report noted that the aggregate funding ratio for U.S. corporate plans increased by 2.4 percentage points to 92.5% as of March 31 from Feb. 28, and by 5.7 percentage points from Dec. 31. The monthly change in funding resulted from a 3.4-percentage-point decrease in liability values partially offset by a 0.7-percentage-point-decrease in asset values.
"March's increase in funded ratio was primarily driven by the continued decrease in liability values as corporate bond yields used to value corporate pension liabilities are estimated to have increased by over 20 basis points driven, by the increase in Treasury yields," said Ned McGuire, managing director and a member of the investment management and research group of Wilshire Associates, in a news release announcing the results. "March's funded ratio is the highest since November 2018, resulting from the recent decrease in liability values and robust public equity returns with the Wilshire 5000 TMI (Total Market index) up over 62% over the past 12 months."
LGIMA found the funding ratio of a typical corporate pension plan increased by 3.7 percentage points to 90.7% for the month, primarily driven by strong equity performance and higher discount rates. LGIMA estimated U.S. Treasury rates rose by 24 basis points while credit spreads widened by 5 basis points, resulting in the average discount rate increasing by 29 basis points.
Liabilities for the typical plan decreased by 3%, while plan assets with a traditional 60% equity/40% bond asset allocation increased by roughly 1.1%, LGIMA said.
Meanwhile, on a quarterly basis, LGIMA's Pension Fiscal Fitness Monitor estimated the average U.S. corporate pension plan funding ratio was 90.7% as of March 31, up from 82.1%, up from as of Dec. 31.
The S&P 500 and global equity markets rose 6.2% and 4.7%, respectively, during the quarter.
Plan discount rates increased by 60 basis points, while plan assets with a traditional 60% equity/40% bond asset allocation rose 1.4%, resulting in an 8.6-percentage-point increase in funding ratios over the fourth quarter.
Chris Wroblewski, solutions strategist at LGIMA, in a news release announcing the results, attributed the quarterly increase in funding ratios "to higher discount rates leading to lower liability values paired with strong global equity performance."
"The first quarter continued to see strong equity returns, positively contributing to funded status gains," Mr. Wroblewski added. "Additionally, the significant rise in Treasury yields over the quarter led to higher discount rates, and ultimately, drove liability values lower."
As measured by Mercer, the monthly estimated aggregate funding ratio of defined benefit plans sponsored by S&P 1500 companies increased by 5 percentage points to 95% as of March 31 because of an increase in discount rates — to 3.01% from 2.76% — and an increase in equities markets.
The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $118 billion as of March 31, down $236 billion at the end of February.