U.S. corporate pension funding ratios remained well above 100% in December despite negative investment returns thanks to liability values dropping as well, according to two new reports.
First, Wilshire Advisors estimated the aggregate funding ratio of U.S. corporate plans reached 104.1% as of Dec. 31, an increase of 0.9 percentage points from the 103.2% funding ratio newly estimated by the firm as of Nov. 30.
Ned McGuire, managing director at Wilshire, said in a news release Jan. 6 that the increase came despite negative equity returns in December.
"December’s increase in funded status was driven by a decrease in liability value, resulting from a more than 30-basis-point increase in corporate bond yields, the largest increase since April 2024 despite the over 3% decline in broad U.S. equity indices," McGuire said.
"During the calendar year 2024, the FT Wilshire 5000 index reached several all-time highs and posted an over 20% return for the second consecutive year," he said. "This marks the best two-year gain of the century and has propelled the month-end aggregate funded ratio estimate above 100%."
The increase in funding ratio was due to the 4.4-percentage-point drop in liability values, partially offset by the 3.5-percentage-point decrease in asset values.
In another monthly report, Legal & General Investment Management America estimated the average funding ratio of the typical U.S. corporate pension plan was 111% as of Dec. 31, the same as a month earlier.
LGIMA said discount rates rose 30 basis points in the month ended Dec. 31, which caused liability values to drop. The change in discount rates — which includes a slight rounding error — was driven by the Treasury component rising 30 basis points and the credit component tightening by less than 1 basis point.
LGIMA's Pension Solutions Monitor said the drop in liability values was offset by a similar drop in asset values, which was driven by the S&P 500 index and MSCI ACWI Total Gross index each losing 2.3% during December.
The monitor assumes a typical liability profile using a duration of 12 years and an asset allocation of 50% MSCI ACWI index and 50% Bloomberg U.S. Long Government/Credit index.
