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Administration May 8, 2017
Equity Rally Helped Pension Funding in April
While one source says pension funded status remained level and another says it dipped in April, both agree equity markets were a positive for pension plans during the month.
Reported by Rebecca Moore
The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies remained level at 83% funded status in April, as a decrease in discount rates was offset by positive equity markets, according to Mercer.
As of April 30, the estimated aggregate deficit of $392 billion represents an increase of $1 billion as compared to the deficit measured at the end of March. The aggregate deficit is down $16 billion from the $408 billion measured at the end of 2016.
“April was another month in which funded status failed to improve despite rising equity markets,” says Matt McDaniel, a partner in Mercer’s Wealth Business. “Falling interest rates have now given back most of the ground they gained following the election. Sponsors who were hoping that recent rate increases signaled a long term trend should re-evaluate their plans for dealing with a prolonged low-rate environment. Recent rate movements could also make lump sum exercises look more attractive in 2017.”
Legal & General Investment Management America (LGIMA) estimates that pension funding ratios decreased 0.2% over the month of April, with modest losses driven mainly by a fall in the Treasury rate offsetting the gains in the global equity markets. LGIMA estimates plan discount rates fell 9 basis points, as Treasury rates fell by 8 basis points and credit spreads tightened by about 1 basis point. Overall, liabilities for the average plan were up 1.47%, while plan assets with a traditional “60/40” asset allocation increased by 1.27%.
However, LGIMA says the rally in equities has positively affected pension funding ratios over the month.