According to Northern Trust, the average funding ratio for S&P 500 companies with defined benefit plans inched up to 80% in June from 79.8% the month before. Global equity market returns were up roughly 3.2% during the month, while the discount rate decreased to 2.28% from 2.38% during the month, leading to higher liabilities.
"Further tightening of credit spreads led to higher liabilities in June," said Jessica K. Hart, senior vice president and head of the outsourced CIO retirement practice at Northern Trust Asset Management, in a news release. "This liability increase was offset by favorable returns from long credit bonds and equities resulting in little funded ratio movement. Year-to-date, funded ratios are still down approximately 7%."
As measured by Wilshire, the aggregate funding ratio for U.S. corporate plans increased by 0.7 percentage points as of June 30 to 82.7% from May 31. The resulted from a 1.8% increase in asset values partially offset by a 0.9% increase in liability values.
"June's increase in funded ratio was driven by a third consecutive monthly increase for most asset classes, especially U.S. equity," said Ned McGuire, managing director and a member of the investment management and research group of Wilshire Consulting, in a separate news release announcing the results. "The Wilshire 5000 Total Market index posted its best percentage quarterly gain of 21.94% since the first quarter of 1975."
Meanwhile, Mercer said the estimated aggregate funding level of pension plans sponsored by S&P 1500 companies decreased by 1 percentage point to 80% as of June 30 because of a decrease in discount rates to 2.57% from 2.69% partially offset by an increase in equity markets.
The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $493 billion as of June 30, up $17 billion from the end of May.
"Funded status slightly decreased in June, but still remains well above its lows from March," said Matt McDaniel, a partner in Mercer's Wealth business, in a separate news release. "Equity markets continued their rally despite a dip at the end of the month. However, high quality corporate interest rates continued their downward slide to yet another all-time low, as credit spreads tightened during the month."
Mr. McDaniel added: "Despite the turmoil in the markets we still see opportunities for plan sponsors to transfer risk. We continue to see extremely attractive pricing for annuity buyouts, and with the decrease in interest rates since the beginning of the year, lump-sum windows may be attractive for many plans."