U.S. corporate pension plans finished 2023 with an average funding ratio that exceeded 100%, three new reports show.
A quarterly report from MetLife Investment Management shows the estimated average funding ratio of companies in the Russell 3000 that sponsor defined benefit plans was 101.4% as of Dec. 31, down from 103.3% as of Sept. 30.
The report said that despite positive equity and fixed-income returns during the fourth quarter, liability values rose due to falling interest rates and tightening credit spreads during the period.
MetLife's average allocation for the tracked companies is 35% long-duration fixed income, 22% domestic equities, 12% core fixed income, 11% international equities, 6% hedge funds, 5% each commodities and private equity, and 2% each cash and real estate.
In a monthly report, Legal & General Investment Management America estimated the average funding ratio of the typical U.S. corporate pension plan rose to 104.1% as of Dec. 31 from 103.4% as of Nov. 30.
In its latest monthly Pension Solutions Monitor, LGIMA said strong global equity markets during December were the primary driver of pension funding surpluses rising further.
The monitor cited the MSCI ACWI Total Gross index and the S&P 500 index gaining 4.8% and 4.5%, respectively, during the period. Also, the monitor estimated that plan discount rates fell 52 basis points during December, with the Treasury component decreasing by 51 basis points and the credit component tightening by 1 basis point.
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, Aon said the aggregate funding ratio of S&P 500 companies that sponsor defined benefit plans dropped to 100.9% as of Dec. 31, down from 102.3% a month earlier.
Aon said that even though pension assets returned 5.2% during December, the interest rates used to value pension liabilities fell to 4.96% from 5.47% a month earlier and offset those market-related gains.
Aon estimated the fall in discount rates based on the month-end 10-year Treasury rate falling 49 basis points from a month earlier and the narrowing of credit spreads by 2 basis points.
