Despite a 71-basis-point drop in the average discount rate contributing to a 7.7% rise in aggregate liabilities, Pensions & Investments' annual analysis of SEC filings showed a 1-percentage-point increase in the average funding ratio of the 100 largest U.S. corporate defined benefit plans in 2020.
"If you didn't know what happened in between, you wouldn't have seen too much change year-over-year from 2019 to 2020, with funded status ending right around where it started. But a lot did happen," said Tom Meyers, executive director and head of Americas client solutions at Aviva Investors Americas LLC in Chicago.
As of March 31, 2020, Wilshire Consulting estimated the aggregate funding level of S&P 500 company-sponsored pension plans at 79.2%, a 9.4-percentage-point decrease from the end of 2019. However, the aggregate funding ratio of P&I's universe was 88.4% as of Dec. 31, which Mr. Meyers said "reflects the magnitude of the capital markets recovery."
The average funding ratio of the 100 largest plans was 92%, up from 91% the year before.
As plans recovered from the drop in funded status and the market dislocations that followed the onset of the pandemic last spring, Mr. Meyers said well-positioned plans made opportunistic moves, such as selling Treasuries to increase corporate bond exposures at higher spreads and investing in alternative asset classes like commercial real estate, private credit or high yield that were under pressure during the crisis.
"Plans that had the ability and the governance in place to tactically invest, and the consultants to guide them there, did that," Mr. Meyers said.