U.S. corporate pension funding ratios dropped in March, primarily due to negative investment returns for the period, according to estimates from Wilshire Advisors and Legal & General Investment Management America.
First, Wilshire estimated the aggregate funding ratio of U.S. corporate plans was 103% as of March 31, a drop of 1 percentage point from 104% as of Feb. 28.
The overall drop in funding ratio, which includes a rounding error, was driven by a drop in asset values of 2.2 percentage points, partially offset by a decrease in liability values totaling 1.3 percentage points,
Ned McGuire, managing director at Wilshire, said in a news release April 2 that the decrease was primarily due to negative returns across most asset classes during March.
“The liability value decreased as corporate bond yields, which are used to value corporate pension liabilities, increased, partially offsetting the asset value decline. The estimated funded ratio at the end of March continues to show overfunding, maintaining the trend observed over the past 12 months,” McGuire said.
In its monthly report, LGIMA estimated the average funding ratio of the typical U.S. corporate pension plan was 109.6% as of March 31, down from 111.5% a month earlier.
LGIMA's Pension Solutions Monitor also said negative investment returns drove the drop in funding ratio for March, citing the S&P 500 index and MSCI ACWI Total Gross index losing 5.6% and 3.9%, respectively, for the month ended March 31.
LGIMA said discount rates increased 7 basis points in the month, which caused liability values to drop, slightly offsetting the negative returns. The change in discount rates was driven by the Treasury component rising 1 basis point and the credit component widening by 6 basis points.
The Pension Solutions Monitor assumes an asset allocation of 50% MSCI ACWI index and 50% Bloomberg U.S. Long Government/Credit index and a typical liability profile using a duration of 12 years.
