U.S. corporate pension funding ratios fell in February, primarily due to rising liability values, according to estimates from Wilshire Advisors and Legal & General Investment Management America.
First, Wilshire estimated the aggregate funding ratio of U.S. corporate plans was 104% as of Feb. 28, a drop of 1.1 percentage points from the firm's updated 105.1% funding ratio as of Jan. 31.
The overall drop in funding ratio was driven by an increase in liability values of 2.5 percentage points, which was partially offset by a rise in asset values of 1.4 percentage points.
Ned McGuire, managing director at Wilshire, said in a news release March 5 that the decrease was due to corporate bond yields dropping 25 basis points during the month, the largest monthly decline since December 2023.
“This drop occurred as consumer confidence experienced its largest monthly decline since August 2021,” McGuire said. "While U.S. equities saw a pullback, as reflected by a nearly 2-percentage-point monthly decline in the FT Wilshire 5000 index, most other asset classes experienced positive returns, leading to an increase in total asset value month-over-month.”
In its monthly report, LGIMA estimated the average funding ratio of the typical U.S. corporate pension plan was 111.5% as of Feb. 28, down from 112.6% a month earlier.
LGIMA said discount rates decreased 23 basis points in the month ended Feb. 28, which caused liability values to rise. The change in discount rates — which includes a slight rounding error — was driven by the Treasury component falling 30 basis points and the credit component widening by 7 basis points.
LGIMA's Pension Solutions Monitor said the S&P 500 index and MSCI ACWI Total Gross index lost 1.3% and 0.6%, respectively, for the month ended Feb. 28.
However, the monitor assumes an asset allocation of 50% MSCI ACWI index and 50% Bloomberg U.S. Long Government/Credit index and estimated that the typical U.S. corporate pension plan had a 1.9% investment return. It was not enough to offset the increase in liabilities.
LGIMA's Pension Solutions Monitor also assumes a typical liability profile using a duration of 12 years.
