U.S. corporate pension plans' funding ratios remained over or near 100% in November, but four reports said ratios dropped slightly because rising discount rates offset strong investment returns for the period.
The estimated funding ratio of the 100 largest U.S. corporate pension funds fell to 111.2% as of Nov. 30, down from 113.3% as of Oct. 31, according to the latest Milliman 100 Pension Funding index.
The slight dip was driven by the discount rate decreasing to 5.16% as of Nov. 30, down from 5.71% as of Oct. 31. That offset a strong month for investment returns, which Milliman estimated at 4.6% for November. October investment returns were an estimated 0.21%.
"November's discount rate decrease was the largest monthly drop of the year and only the second monthly decline we've seen in 2022," said Zorast Wadia, principal and consulting actuary at Milliman and co-author of the pension funding index, in a news release Wednesday. "This caused the plans' funded status to drop, despite November's stellar investment returns, which were the largest monthly gains of the year."
A report from Wilshire noted that the aggregate funding ratio for U.S. corporate plans stayed flat during November at 99.1%, the same as the prior month. A 6.4 percentage point increase in assets was offset by an equal increase in liabilities.
"November saw a sharp increase in liability value resulting from a more than 50-basis-point decrease in corporate bond yields used to value corporate pension liabilities," said Ned McGuire, managing director at Wilshire, in a news release Thursday. "Non-U.S. equities, represented by the MSCI ACWI ex U.S. Index, experienced the highest monthly return of 11.8% since November 2020."
In its monthly report, Legal & General Investment Management America estimated the average funding ratio of the typical U.S. corporate pension plan was 100.2% as of Nov. 30, down from 100.7% a month earlier.
In its latest Pension Solutions Monitor, LGIMA said the estimated average funding ratio fell during November due to the fall in discount rates offsetting asset gains coming from strong global equity returns.
According to LGIMA, plan discount rates rose an estimated 27 basis points during the month, with the Treasury component increasing 36 basis points and the credit component tightening by 9 basis points. The monitor cited the MSCI AC World Total Gross index and S&P 500 index returning 7.8% and 5.6%, respectively, during 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 a fourth monthly report, Insight Investment said the funding ratio for U.S. corporate pension plans fell to 104.1% during November from 105.5% the previous month.
The fall in funding ratio during the month was the result of Insight Investment estimating that liabilities rose by 6.5 percentage points, offsetting a 5.1 percentage point increase in assets.
The average discount rate fell to 5.05% as of Nov. 30 from 5.61% a month earlier, according to Insight.