Funding ratios for corporate plans down in March – 3 reports

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

LGIMA found the funding ratio of a typical corporate pension plan fell by 0.9 percentage points to 73.5%, primarily driven by poor equity performance and widening credit spreads. LGIMA estimates U.S. Treasury rates decreased by 35 basis points, while credit spreads widened by 87 basis points, resulting in the average discount rate increasing by 52 basis points.

Liabilities for the typical plan decreased 7.2%, while plan assets with a traditional 60% equity/40% bond asset allocation decreased by roughly 8.3%, LGIMA said.

Wilshire's monthly report noted that the aggregate funding ratio for U.S. corporate plans decreased by 2.7 percentage points as of March 31 to 79.2% from Feb. 29. The monthly change in funding resulted from a 7.3-percentage-point decrease in asset values partially offset by a 4-percentage-point decrease in liability values.

"March's decrease in funded ratio was driven by stress in financial markets due to the COVID-19 pandemic. For most asset classes, returns were negative for the month," 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. "March marks the third consecutive monthly decrease with the funded ratio now at its lowest month-end level since October 2016."

According to Mercer, the estimated aggregate funding ratio of defined benefit plans sponsored by S&P 1500 companies decreased by 3 percentage point to 76% as of March 31 because of a decrease in equity markets partially offset by an increase — 0.39 percentage points — in discount rates to 3.04% in the month.

The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $576 billion as of March 31, up $49 billion from the end of February.