U.S. corporate pension plans' funding ratios continued to hover around 100% in March following a month of falling discount rates at least partially offsetting a strong month of investment returns, according to three new monthly reports.
In its latest report estimating the aggregate funding ratio of S&P 1500 companies with pension plans, Mercer said the ratio dipped to 102% as of March 31 from 103% as of Feb. 28, primarily due to the drop in discount rates. The typical discount rate for pension plans as measured by the Mercer Yield Curve fell to 4.93% at the end of March from 5.21% a month earlier.
That drop was partially offset by strong market returns for the month, with the S&P 500 index and MSCI EAFE index increasing 3.51% and 1.89%, respectively.
"Inflation reports in March continued to show the trend of slowing inflation although at a pace that's still above long-term expectations," said Scott Jarboe, partner in Mercer's wealth business, in a news release Friday. "The recent bank troubles have startled markets, but at this point the key impact is that rates have decreased as many believe the Fed (Federal Reserve) will end rate increases soon to try and avoid further bank troubles. This remains to be seen, but as markets keep a close eye on the banking situation, rates and the Fed, plan sponsors should continue to evaluate their risk position. Doors to various risk transfer strategies could open and close fairly quickly if market volatility continues throughout this year."
Legal & General Investment Management America in its own estimate said the average funding ratio of the typical U.S. corporate pension plan actually rose slightly to 100.3% as of March 31 from 99.9% a month earlier.
In its latest monthly Pension Solutions Monitor, LGIMA said the estimated average funding ratio rose slightly in March because the positive market returns offset the decrease in discount rates.
According to LGIMA, plan discount rates decreased an estimated 30 basis points during the month, with the Treasury component dropping 34 basis points and the credit component widening by 4 basis points.
Because of strong investment returns, LGIMA estimated that assets rose by 3.8% during March, offsetting an estimated rise of 3.4% in liabilities.
The Pension Solutions Monitor assumes a typical liability profile using a duration of about 12 years and an asset allocation of 50% MSCI AC World Total Gross index and 50% Bloomberg U.S. Long Government/Credit index.
In a separate monthly estimate, Insight Investment said the funding ratio fell to 102.3% during March from 103.9% a month earlier.
The drop in funding ratio was due to discount rates falling 25 basis points to 4.89% as of March 31 from 5.14% as of Feb. 28, which offset equity market losses during the period, according to Insight.