U.S. corporate pension funding surpluses vaulted higher in January, thanks to a strong month of returns across global equities, according to estimates from Wilshire Advisors and Legal & General Investment Management America.
First, Wilshire estimated the aggregate funding ratio of U.S. corporate plans reached 105.4% as of Jan. 31, an increase of 1.8 percentage points from the firm's updated 103.6% funding ratio as of Dec. 31.
Ned McGuire, managing director at Wilshire, said in a news release Feb. 5 that the increase was due to returns bouncing back in January from a negative December.
"During the month, multiple market catalysts contributed to this improvement: non-U.S. equities had their best monthly return since December 2023, the Federal Reserve paused its campaign of interest rate cuts resulting in minimal month-over-month changes in corporate bond yields — used to value corporate pension liabilities,” McGuire said. “The positive returns across asset classes helped maintain the month-end aggregate funded ratio estimate above 100%.”
In its monthly report, LGIMA estimated the average funding ratio of the typical U.S. corporate pension plan was 112.6% as of Jan. 31, up from 111.1% 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 increase in the funding ratio was driven by the MSCI ACWI Total Gross index and S&P 500 index returning 3.4% and 2.8%, respectively, for the month ended Jan. 31.
Slightly offsetting the market gains was an estimated drop of 4 basis points in discount rates, which increased the estimated liabilities of corporate pension plans. The drop in discount rates was driven by the Treasury component falling 3 basis points and the credit component tightening by 1 basis point.
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.
