U.S. corporate pension plans opened the new year with an increase in funding ratios due to January's positive market returns offsetting a decline in discount rates that raised liabilities, 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 99.8% as of Jan. 31, up from 98.3% a month earlier.
In its latest monthly Pension Solutions Monitor, Legal & General Investment Management America said the estimated average funding ratio rose in January because of the equity market rally during the month. The monitor cited the MSCI AC World Total Gross index and S&P 500 index gaining 7.2% and 6.3%, respectively, during the period.
According to LGIMA, plan discount rates dropped an estimated 47 basis points during the month, with the Treasury component decreasing 37 basis points and the credit component tightening by 10 basis points.
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. Aggregate Bond index.
In a separate monthly report, Insight Investment said the funding ratio for U.S. corporate pension plans rose to 102.5% during January, up from 102.1% a month earlier.
The increase in the funding ratio was the result of Insight estimating that increases in assets due to positive market returns offset increases in liabilities. According to the estimate, assets grew by 5.5 percentage points because of positive returns, while liabilities increased by 5.1 percentage points.
Those liabilities rose because the average discount rate fell to 4.74% as of Jan. 31 from 5.11% a month earlier, Insight said.
In another monthly report, Aon said the aggregate funding ratio of S&P 500 companies that sponsor defined benefit plans rose to 94.3% as of Jan. 31, up from 93.6% a month earlier.
Aon said pension assets returned 5.3% during January and the interest rates used to value pension liabilities fell to 4.32% from the previous rate of 4.68% estimated a month earlier.
According to Aon, while falling discount rates led to pension liabilities rising, the strong returns offset those increases.
