Funding ratios for U.S. corporate pension plans dropped in July, according to reports from Legal & General Investment Management America, Northern Trust Asset Management, Mercer and Wilshire Consulting.
LGIMA found the funding ratio of a typical corporate pension plan fell by 0.8 percentage points to 82.3%, primarily driven by tightening credit spreads. LGIMA estimates Treasury rates increased by 1 basis point, while credit spreads tightened by 7 basis points, resulting in the average discount rate falling 6 basis points.
Liabilities for the typical plan were up 1.21%, while plan assets with a traditional 60% equity/40% bond asset allocation also increased 0.28%, LGIMA said.
As measured by Northern Trust, the average funding ratio for S&P 500 companies with defined benefit plans declined by 0.5 percentage points to 86% in July from June's 86.5%. Global equity markets rising approximately 0.3% during the month drove the change, while the discount rate decreased to 2.99% from 3.06% during the month.
"During July, pensions continued to face headwinds from interest rate, with the average funded ratio declining due to higher liabilities from lower discount rates," said Jessica Hart, head of OCIO retirement practice at Northern Trust Asset Management, in a news release announcing the results. "Compared to the beginning of the year, funded ratios have now slightly declined from 86.3% to 86% despite the favorable equity returns."
According to Mercer, the estimated aggregate funding ratio of defined benefit plans sponsored by S&P 1500 companies decreased by 1 percentage point to 86% as of July 31 because of a slight decrease — 0.06 percentage points — in discount rates to 3.38% in the month.
The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $322 billion as of July 31, up $14 billion from the end of June.
According to Wilshire, the aggregate estimated funding ratio for U.S. pension plans sponsored by S&P 500 companies decreased by 0.4 percentage points to end July at 85.6%, which is down 6.8 percentage points over the trailing 12 months.
The monthly change in funding resulted from a 0.7% increase in liability values partially offset by a 0.3% increase in asset values. The aggregate funded ratio is estimated to be down 1.9 percentage points year-to-date.
"July's decrease in funded ratio was driven by the natural maturation of pension liabilities partially offset by muted asset performance," said Ned McGuire, managing director and a member of the pension risk solutions group of Wilshire Consulting in a news release announcing the results. "July's 0.4 percentage-point decrease in funded ratio is the third monthly decrease this year and fifth over the trailing twelve months."
