U.S. corporate pension funding ratios ticked up slightly in April primarily due to dropping liability values offsetting a volatile market environment, 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 103.3% as of April 30, an increase of 0.3 percentage points from the estimate of 103% as of March 31.
The overall increase in funding ratio was driven by a drop in liability values of 0.6 percentage points, which was partially offset by a decrease in asset values of 0.2 percentage points. The calculated funding change contains rounding errors.
Ned McGuire, managing director at Wilshire, said in a news release May 6 that the funding ratio increased primarily due to a decrease in liability values.
“Corporate bond yields, used to value corporate pension liabilities, fluctuated significantly –- declining early in the month before peaking mid-month following the Liberation Day announcements, and then settling with an approximate 10 basis point increase month-over-month,” McGuire said.
“U.S. equity, represented by the FT Wilshire 5000 Index, experienced volatility too, increasing at the start of the month, reaching a low point near mid-month, and ultimately ending with a modest decline for the entire month,” said McGuire. “However, positive returns from non-U.S. equity and shorter-duration fixed income left the asset value nearly unchanged. As a result, the decrease in liability value led to an increase in the estimated funded ratio at the end of April.”
In its monthly report, Legal & General estimated the average funding ratio of the typical U.S. corporate pension plan was 110.2% as of April 30, up from 109.6% a month earlier.
L&G said discount rates increased 1 basis point in the month ended April 30, which caused liability values to fall. The change in discount rates — which includes a slight rounding error — was driven by the Treasury component falling 5 basis points and the credit component widening by 6 basis points.
L&G's Pension Solutions Monitor said the MSCI ACWI Total Gross index and the S&P 500 index returned 1% and -0.7%, respectively, for the month ended April 30.
The monitor assumes an asset allocation of 50% MSCI ACWI index and 50% Bloomberg U.S. Long Government/Credit index and estimated that the typical U.S. corporate pension plan had a flat investment return during the month.
LGIMA's Pension Solutions Monitor also assumes a typical liability profile using a duration of 12 years.
