U.S. corporate pension funds saw funding ratios rise slightly in November, thanks to very strong market returns offsetting a significant rise in liability values, three new reports say.
Wilshire Advisors estimated the aggregate funding ratio of U.S. corporate plans reached 105.4% as of Nov. 30, up from 105.1% a month earlier.
The change was driven by a 7.8 percentage-point increase in asset values offsetting a 7.4 percentage-point increase in liability values. The two increases rounded to a funding hike of 0.3 percentage points, Wilshire said.
"November's increase in funded status was driven by the decrease in Treasury yields and corporate bond spreads, marking the largest monthly increase in liability value since December 2012, when Wilshire began monthly reporting of funded ratio estimates. Corporate bond yields, used to value corporate pension liabilities, are estimated to have decreased by nearly 70 basis points this month," said Ned McGuire, managing director at Wilshire, in a Dec. 5 news release.
"With several asset classes achieving their best monthly performances in over a decade, notably core fixed having its best monthly performance since 1985, the aggregate funded ratio is estimated to have slightly increased despite the largest monthly increase in liability value in more than 10 years," said McGuire.
Wilshire's assumed asset allocation is 31% long-duration fixed income, 28% core fixed income, 25% domestic equity, 14% international equity and 2% real estate.
Legal & General Investment Management America estimated the average funding ratio of the typical U.S. corporate pension plan rose to 103.4% as of Nov. 30 from 102.2% as of Oct. 31.
In its latest monthly Pension Solutions Monitor, LGIMA said the estimated average funding ratio rose due to an exceptionally strong November equity market, offsetting the increase in liability values.
The monitor cited the MSCI ACWI Total Gross index and the S&P 500 index gaining 9.3% and 9.1%, respectively, during the period. Also, the monitor estimates plan discount rates dropped 78 basis points during November, with the Treasury component decreasing by 57 basis points and the credit component tightening by 21 basis points.
The Pension Solutions Monitor assumes a typical liability profile using a duration of 12 years and an asset allocation of 50% MSCI ACWI and 50% Bloomberg U.S. Long Government/Credit index.
In another monthly report, Insight Investment said the funding ratio for U.S. corporate pension plans increased to 108.2% as of Nov. 30, up from 108.1% a month earlier. Insight's report echoed the others in citing a growth in assets offsetting an increase in liabilities for the slightly larger pension surplus.
According to Insight's estimate, the discount rate fell to 5.45% as of Nov. 30 from 6.1% as of Oct. 31.