The average funding ratios for corporate pension plans remained flat in October, according to reports from Legal & General Investment Management America, Wilshire Associates and Northern Trust Asset Management, while a report from Mercer noted a 1-percentage-point decline.
LGIMA found the funding ratio of a typical corporate pension plan decreased by 0.5 percentage points to 77.4% at the end of October from 77.9% at the end of September, primarily driven by poor equities performance. LGIMA estimated U.S. Treasury rates increased by 18 basis points while credit spreads tightened by 10 basis points, resulting in the average discount rate increasing by 8 basis points.
Liabilities for the typical plan decreased by roughly 0.9%, while plan assets with a traditional 60% equity/40% bond asset allocation decreased by roughly 1.6%, LGIMA said.
As measured by Wilshire, the aggregate funding ratio for U.S. corporate plans remained unchanged month-over-month at 82.9% as of Oct. 31 from Sept. 30. October's funding ratio resulted from a 2% decrease in assets offset by a 2% decrease in liabilities.
"October's funded ratio was driven on one hand by negative returns for most asset classes, especially the continued decline in global public equity, but it was offset by the decrease in liability values as corporate bond yields used to value corporate pension liabilities increased by over 10 basis points," said Ned McGuire, managing director and a member of the investment management and research group of Wilshire Associates, in a news release announcing the results.
As measured by Northern Trust, the average funding ratio for S&P 500 companies with defined benefit plans decreased to 82.1% in October from 82.5% the month before.
Global equity markets dropped about 2.4% during the month and drove the change, while the discount rate increased to 2.37% from 2.27% during the month.
"Funded ratios continued to decline in October despite the higher rates," said Jessica K. Hart, senior vice president and head of the OCIO retirement practice at Northern Trust Asset Management, in a news release announcing the results. "As the market volatility continues due to rising coronavirus cases and uncertainty from the election, we expect that funded ratio will remain volatile in the near future."
Mercer said the estimated aggregate funding level of pension plans sponsored by S&P 1500 companies decreased by 1 percentage point to 82% as of Oct. 31 because of a decrease in equity markets partially offset by an increase in discount rates increased to 2.64% from 2.53%.
The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $441 billion as of Oct. 31, up $8 billion from the end of September.
“Funded status dropped 1%in October as equity markets pulled back,” said Matt McDaniel, a partner in Mercer’s wealth business, in a separate news release. “GDP grew over 7% in the third quarter, but we saw equity markets sell off late in the month due to new COVID-19 cases rising rapidly and uncertainty with respect to the U.S. presidential election.”
Mr. McDaniel added: “A few months ago additional pension funding relief, which could help mitigate a potential end-of-year market slide, looked promising. However, additional relief looks less likely now. Plan sponsors preparing for 2021 may notice an uptick in cash contributions as interest rate relief from several years ago starts to phase out next year.”