Funding ratios for U.S. corporate pension plans increased in August, according to reports from Legal & General Investment Management America, Wilshire and Mercer.
LGIMA found in its monthly pension solutions monitor that the funding ratio of a typical corporate pension plan increased by 1.6 percentage points to 90.8% in August primarily due to strong performance from global equities.
LGIMA estimated U.S. Treasury rates rose 3 basis points while credit spreads widened by 2 basis points, resulting in the average discount rate rising by 5 basis points.
Liabilities for the typical plan decreased 0.3%, while plan assets with a traditional 60% equity/40% bond asset allocation increased by about 1.4%, LGIMA said.
As measured by Wilshire, U.S. corporate pension plans' aggregate funding ratio rose 1.2 percentage points to 94% in the month ended Aug. 31. The investment consulting firm attributed the change a 0.7-percentage-point decrease in liability values compounded by a 0.6-percentage-point increase in asset values.
"August's funded ratio increase snapped two consecutive months of funded ratio decreases," said Ned McGuire, managing director and a member of the investment management and research group at Wilshire, in a news release announcing the results. "August's funded ratio increase was driven by the decrease in liability values as Treasury yields increased month over month for the first time since March 2021, and the continued increase in asset values highlighted by the seventh consecutive monthly increase in U.S. equity values."
Meanwhile, Mercer estimates that the monthly estimated aggregate funding ratio of defined benefit plans sponsored by S&P 1500 companies increased by 2 percentage points to 95% as of Aug. 31 due to an increase in discount rates to 2.58% from 2.51% and an increase in U.S. equity markets.
The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $133 billion as of Aug. 31, down $45 billion from the end of July.
"Funded status increased for the first time in several months as interest rates reversed their downward trend and inched upward in August," said Matt McDaniel, a partner in Mercer's wealth business, in a news release. "As we approach the fourth quarter of the year, some may be wondering when/if an equity sell-off may occur. In light of funded status improvements this year, plan sponsors should evaluate their current position to ensure they are appropriately protected," Mr. McDaniel added.
