Funding ratios for corporate pension plans inched up in June, according to reports from Wilshire Consulting and Northern Trust Asset Management.
Wilshire's monthly report noted that the aggregate funding ratio for U.S. corporate plans increased by 0.8 percentage points to 86.4% as of June 30 from May 31. The monthly change in funding was due to a 3.8-percentage-point increase in asset values offset by an increase of 2.8 percentage points in liability values.
"June's increase in funded ratio was driven by the best performance for June in Wilshire 5000 history," said Ned McGuire, managing director and member of the investment management and research group at Wilshire Consulting. "June's 0.8-percentage-point increase in funded ratio is the fourth monthly increase this year."
As measured by Northern Trust, the average funding ratio for S&P 500 companies with defined benefit plans increased to 87% in June from 86% the month before.
Global equity markets rose about 6.55% during the month and drove the change, while the discount rate decreased to 3.06% from 3.27% during the month.
"Even though equity markets recovered strongly in June, the improvement in funded ratio was not as significant due to higher liabilities from a decline in discount rates," said Dan Kutliroff, senior vice president and head of OCIO business strategy at Northern Trust, in a news release announcing the results. "With the expectation of possible cuts in Fed rates, the yields on long bonds have declined, which led to increased liabilities. For the first half of 2019, funded ratios only marginally improved by 0.2% while global equity markets experienced a stellar 16.2% return. This highlights the importance of monitoring the asset performance relative to the pension liabilities as the funded ratio is ultimately the relevant metric for pension plans."
