U.S. corporate pension plan funding ratios remained high at the end of September as falling liabilities continue to offset a challenging market return environment, according to four new reports.
In a quarterly report released Monday, MetLife Investment Management said the estimated average funding ratio of companies in the Russell 3000 that sponsor defined benefit plans was 100.7% as of Sept. 30, up from 98.5% as of June 30.
"The third quarter of the year saw continued pension asset losses, averaging -6.9%. Most of the asset classes we track for our pension estimate experienced losses in the quarter," Stephen Mullin, head of long duration and LDI strategies at MetLife, said in the report. However, higher discount rates offset those losses by decreasing liabilities by 10.3% during the three months ended Sept. 30.
MetLife's average allocation for the tracked companies is 49% fixed income and cash, 33% equities and 18% alternatives.
In it monthly report, Legal & General Investment Management America estimated the average funding ratio of the typical U.S. corporate pension plan was 95.6% as of Sept. 30, the same as a month earlier.
LGIMA in its latest Pension Solutions Monitor said the estimated average funding ratio remained steady because rising interest rates offset asset losses due to weak equity markets during September.
According to LGIMA, plan discount rates rose 83 basis points during the month, with the Treasury component increasing 61 basis points and the credit component widening by 22 basis points.
The drop in liabilities was enough to overcome the S&P 500 index dropping 9.5% over the period.
The Pension Solutions Monitor assumes a typical liability profile using a duration of about 12 years and an asset allocation of 60% MSCI AC World Total Gross index and 40% Bloomberg U.S. Aggregate Bond index.
In another monthly report, Aon said the aggregate funding ratio of S&P 500 companies that sponsor defined benefit plans increased to 93.9% as of Sept. 30 from 93% a month earlier.
Aon said pension assets returned -6.8% during August and the interest rates used to value pension liabilities rose to 4.97% from 4.23%.
According to Aon, rising rates offset the effect of poor returns on asset values, resulting in the increase in funding ratio.
Finally, in a fourth report, this time covering Canadian defined benefit plans, Mercer estimated the median funding ratio of the plans in its database fell slightly to 108% as of Sept. 30 from 109% as of June 30.
Mercer estimates that 72% of the plans in its database have funding ratios over 100% (down from 73% at the end of the second quarter), 17% have ratios between 90% and 100% (up from 16%), 5% have ratios between 80% and 90% and only 6% have ratios under 80% (both the same as the previous quarter).
