LGIMA found in its monthly pension solutions monitor that the funding ratio of a typical corporate pension plan decreased by 1.1 percentage points to 89.7% in August primarily due to weak performance from global equities.
LGIMA estimated U.S. Treasury rates rose 19 basis points while credit spreads tightened by 3 basis points, resulting in the average discount rate rising by 16 basis points.
Liabilities for the typical plan decreased 1.6%, while plan assets with a traditional 60% equity/40% bond asset allocation decreased by about 2.8%, LGIMA said.
As measured by Wilshire, U.S. corporate pension plans' aggregate funding ratio decreased by 0.6 percentage points to 93.5% in September.
The investment consulting firm attributed the change to a decrease of 3 percentage points in asset values partially offset by decrease of 2.4 percentage points in liability values.
According to Northern Trust, the average funding ratio for S&P 500 companies with defined benefit plans decreased to 93.8% in September from 94.6% the month before.
The change was driven by global equity markets dropping about 4.1% in September being offset by the discount rate increasing to 2.56% from 2.42% during the month.
"The seven-percentage-point improvement in funded ratio year-to-date has certainly been above expectations. We are not expecting the Fed to raise rates anytime soon since their consensus forecasts call for inflation to settle next year," said Jessica K. Hart, senior vice president and head of the OCIO retirement practice at Northern Trust Asset Management, in a news release announcing the results. "However, persistently high inflation could pull forward rate hike expectations."
"If pension plans experience losses from their long bond portfolios due to rising rates, their liabilities are also expected to decline by at least a similar amount," Ms. Hart added.
Meanwhile, Mercer estimates that the monthly estimated aggregate funding ratio of defined benefit plans sponsored by S&P 1500 companies decreased by 1 percentage point to 94% in September due to a decrease in equity markets partially offset by an increase in discount rates to 2.74% from 2.58%.
The estimated aggregate deficit of pension fund assets of S&P 1500 companies totaled $148 billion as of Sept. 30, up $15 billion from the end of August.
"Funded status took a small step back in September as U.S. equity markets had their worst month in over a year," said Scott Jarboe, a partner in Mercer's wealth business, in a news release. "Fortunately for pension plans, interest rates bounced back offsetting some of the impact of poor equity market performance."
Mr. Jarboe added: "As we enter the fourth quarter, many plan sponsors are planning for next year and have to contend with incredible uncertainty in equity and bond markets driven by a variety of factors, including Fed tapering bond purchases and potentially increasing short term rates next year, inflation concerns, and the ongoing pandemic. With the funded status gains many plans have realized this year, derisking activities should be given close consideration as they may be attractive ways to stabilize funded status amid such market uncertainty."