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June 03, 2020 03:21 PM

Corporate plan funding ratios rise in May – 3 reports

James Comtois
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    Funding ratios for corporate pension plans increased in May, according to reports from Wilshire Consulting, Mercer and LGIMA.

    Funding ratios for corporate pension plans increased in May, according to reports from Wilshire Consulting, Mercer and Legal & General Investment Management America.

    Wilshire's monthly report noted that the aggregate funding ratio for U.S. corporate plans increased by 0.8 percentage points as of May 31 to 82% from April 30. The monthly change in funding resulted from a 1.8 percent increase in asset values partially offset by a 0.8 percent increase in liability values.

    "May's increase in funded ratio was primarily driven by a second consecutive monthly increase for global public equities," said Ned McGuire, managing director and a member of the investment management and research group of Wilshire Consulting, in a news release announcing the results.

    Mercer said the estimated aggregate funding level of pension plans sponsored by S&P 1500 companies increased by 1 percentage point to 81% as of May 31 because of an increase in equity markets that offset a decrease in discount rates to 2.69% from 2.77%.

    The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $476 billion as of May 31, down $14 billion from the end of April.

    "Funded status rose 1% in May as interest rates decreased slightly and equity markets improved," said Scott Jarboe, a partner in Mercer's wealth business, in a separate release. "Equity volatility has continued to decrease and during May we saw healthy improvements in both U.S. and international markets.

    Mr. Jarboe added that while funded status is down 7% since the beginning of the year, "there is some good news for plan sponsors. The House recently passed another stimulus bill, the HEROES Act, which includes immediate and longer-term funding relief provisions. However, now the bill moves to the Senate and negotiations are expected to take considerable time before potential agreement on a final bill."

    Meanwhile, LGIMA found the funding ratio of a typical corporate pension plan increased by 1.8 percentage points to 75.2%, primarily driven by higher Treasury rates and an increase in global equities. LGIMA estimated U.S. Treasury rates rose by 9 basis points while credit spreads tightened by 10 basis points, resulting in the average discount rate decreasing by 1 basis point.

    Liabilities for the typical plan increased by roughly 0.3%, while plan assets with a traditional 60% equity/40% bond asset allocation increased by roughly 2.8%, LGIMA said.

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