Funding ratios for corporate pension plans decreased in January, according to reports from Legal & General Investment Management America, Wilshire Consulting, Northern Trust Asset Management and Mercer.
LGIMA found the funding ratio of a typical corporate pension plan fell by 3.5 percentage points to 79.7%, primarily driven by the performance of global equities. LGIMA estimates U.S. Treasury rates decreased by 38 basis points, while credit spreads widened by 10 basis points, resulting in the average discount rate decreasing by 28 basis points.
Liabilities for the typical plan increased 4.56%, while plan assets with a traditional 60% equity/40% bond asset allocation increased by roughly 0.12%, LGIMA said.
Wilshire's monthly report noted that the aggregate funding ratio for U.S. corporate plans decreased by 2.3 percentage points as of Jan. 31 to 86.3% from Dec. 31. The monthly change in funding resulted from a 1.5-percentage-point increase in assets and a 4.3-percentage-point increase in liabilities.
"January's decrease in funded ratio was driven by the increase in liability value resulting from a nearly 40-basis-point decrease in Treasury yields partially offset by a low double-digit basis-point increase in credit spreads," said Ned McGuire, managing director and member of the investment management and research group at Wilshire Consulting, in a news release announcing the results. "January's decrease in funded ratio ended four consecutive months of funded ratio increases and began 2020 with the largest monthly decline in funding levels since August's 4-percentage-point decline."
As measured by Northern Trust, the average funding ratio for S&P 500 companies with defined benefit plans decreased to 85.5% in January from 87.3% the month before.
Global equity markets dropped about 1.1% during the month and drove the change, while the discount rate decreased to 2.48% from 2.77% during the month.
"Funded ratios decreased in January from 87.3% to 85.5%. After year-end, average funded ratios continued to climb and peaked at 88% mid-January," said Jessica K. Hart, senior vice president and head of the outsourced CIO retirement practice at Northern Trust Asset Management, in a news release announcing the results. "Market declines and lower yields driven by fears fueled by the coronavirus resulted in funded ratio declines by the end of January."
According to Mercer, the estimated aggregate funding ratio of defined benefit plans sponsored by S&P 1500 companies decreased by 4 percentage point to 84% as of Jan. 31, because of a decrease in discount rates and equity markets.
The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $402 billion as of Jan. 31, up $101 billion from the end of December.