U.S. corporate pension plans' funding ratios increased in February as falling liability values offset a drop in assets, according to three new monthly reports.
Legal & General Investment Management America estimated the average funding ratio of the typical U.S. corporate pension plan was 99.9% as of Feb. 28, up from 99.8% a month earlier.
In its latest monthly Pension Solutions Monitor, LGIMA said the estimated average funding ratio rose slightly in February because the increase in discount rates, which caused liability values to fall, offset equity markets selling off during the period.
According to LGIMA, plan discount rates increased an estimated 46 basis points during the month, with the Treasury component increasing 38 basis points and the credit component widening by 10 basis points.
The monitor also cited the MSCI AC World Total Gross index and S&P 500 index falling 2.8% and 2.4%, respectively, during the period.
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 for U.S. corporate pension plans rose to 103.9% during February, up from 102.5% a month earlier.
The increase in funding ratio was due to discount rates rising 40 basis points to 5.14% as of Feb. 28 from 4.74% as of Jan. 31, which offset equity market losses during the period, according to Insight.
"The market is expecting two or three more rate hikes from the Fed this year, which may continue to decrease pension liabilities," said Sweta Vaidya, head of solution design at Insight Investment, in an email. "However, the question is: will heightened equity volatility override liability gains and ultimately erode funded status? Do we want to wait and find out, or protect ourselves now?"
In another monthly report, Aon said the aggregate funding ratio of S&P 500 companies that sponsor defined benefit plans rose to 95% as of Feb. 28, up from 94.3% a month earlier.
Aon said pension assets returned -3.2% during February, and the interest rates used to value pension liabilities rose to 4.69% from the previous rate of 4.32% estimated a month earlier.
According to Aon, while negative returns caused asset levels to drop, the drop in liabilities caused by rising interest rates offset those decreases.