US pension plans rose modestly in November, according to reports from financial services company Northern Trust Asset Management and consulting firm Mercer.
Northern Trust reported that the average funded ratio increased during the month to 83.4%, from 83.0%. It , attributed the increase to global equity markets returning nearly 2%, which outweighed the average discount rate decreasing modestly to 3.66% from 3.69%.
For the year-to-date through November, Northern Trust said the average funded ratio has risen to 83.4% from 80.0% at the beginning of year. It said strong asset returns—equity returns for global stocks are up 22% this year—have more than compensated for the decline in discount rate, which leads to higher liabilities.
It also reported that the estimated deficit for pension plans of the S&P 500 corporations has declined to $354 billion at the end of November, from $407 billion at the beginning of the year.
Northern Trust said companies have accelerated contributions as a way to reduce Pension Benefit Guaranty Corporation (PBGC) premiums, and lock-in tax savings at the current rates.
“Making a contribution before the end of the year has the added benefit of potentially lowering the pension expense for 2018, since the expense will be calculated off of a higher asset base,” said Dan Kutliroff, head of OCIO Business Strategy at Northern Trust, in a release.
Meanwhile, Mercer reported that the funded status for the S&P 1500 companies rose by 1% in November to 84%, as a result of an increase in discount rates and positive equity markets. The estimated aggregate deficit decreased $28 billion during the month to $359 billion from the end of October. The aggregate deficit is also down $49 billion from the $408 billion reported at the end of 2016.
“Equity markets continued to rise, leading to the highest pension funded status in over three years,” Matt McDaniel, a partner in Mercer’s wealth business, said in a statement. “Plan sponsors are looking at high equity valuations and rightfully asking themselves if now is the right time to dial back risk. At the same time, looming reductions in corporate tax rates provide a strong incentive to accelerate funding.”
McDaniel added that as a result of the tax bill, “we expect many plan sponsors to accelerate funding while at the same time de-risking using both investment policy and risk transfer.”
Tags: Mercer, Northern Trust, PBGC, Pension