Funding ratios for corporate pension plans rose in October, according to reports from Legal & General Investment Management America, Wilshire Consulting and Northern Trust Asset Management.
LGIMA found the funding ratio of a typical corporate pension plan rose by 1 percentage point to 80.2%, primarily driven by an increase in U.S. Treasury rates and performance of global equities. LGIMA estimates Treasury rates increased by 5 basis points, while credit spreads tightened by 7 basis points, resulting in the average discount rate decreasing 2 basis points.
Liabilities for the typical plan increased 0.51%, while plan assets with a traditional 60% equity/40% bond asset allocation increased by roughly 1.78%, LGIMA said.
Wilshire's monthly report noted that the aggregate funding ratio for U.S. corporate plans increased by 1.1 percentage points to 86% as of Oct. 31 from Sept. 30. The monthly change in funding was due to a 0.9-percentage-point increase in asset values and a 0.3 percentage-point decrease in liability values.
"October's increase in funded ratio was driven by the increase in asset value resulting from positive returns for nearly all asset classes," said Ned McGuire, managing director and member of the investment management and research group at Wilshire Consulting. "October's 1.1 percentage-point increase in funded ratio is the sixth monthly increase this year."
As measured by Northern Trust, the average funding ratio for S&P 500 companies with defined benefit plans increased to 84.6% in October from 84% the month before.
Global equity markets rose about 2.7% during the month and drove the change, while the discount rate decreased slightly to 2.68% from 2.69% during the month.
"Discount rates are 117 basis points lower from year-end 2018. As bond yields stay at these historically low levels, the U.S. Treasury announced that it is considering the issuance of 50-year bonds," said Jessica Hart, head of OCIO retirement practice at Northern Trust Asset Management, in a news release announcing the results. "This would be good news for pension plans since it would allow them to extend duration without using derivatives while maintaining their allocation to risk assets."
