Funding for Corporate Plans Ticks Up After Record April

Funding for corporate pension plans increased for the first time this year after record gains in the stock market last month, a Wilshire Consulting report says.

The aggregate funded ratio for corporate plans reached 83.2% in April, a 2.2 percentage point increase from the month prior, according to a report released Monday from Wilshire. Over the past 12 months, however, the funded ratio fell 7.6 percentage points.

That gave company plans their third best monthly return ever, according to managing director Ned McGuire. Asset values, which gained 6.3%, obscured a rise in pension liabilities. Pension liabilities for the month jumped 3% because of an increase in interest rates.

Those gains reflected broader movements in the stock market. In April, major US stock indices shot up, partially rebounding from the coronavirus crash in March, thanks to hopeful investors anticipating a reopening economy. Reports of a possible new treatment drug from Gilead Sciences also roused shareholders.

Both the Dow and the S&P 500 closed out with a 12% increase from the month prior, and the indices rose roughly 25% from March lows. That gave the benchmarks their best monthly performance in decades.

Defined benefit (DB) plans are increasingly rare in corporate America. Last year, just 16% of private workers had a DB pension plan, as opposed to 86% of public workers, according to the Bureau of Labor Statistics. More plan sponsors are switching to defined contribution (DC) plans, such as a 401(k), as pension plans grow costlier.

Wilshire determined returns for corporate pension plans based on an assumed asset allocation of 24% US equity, 16% non-US equity, 25% core fixed income, 33% long duration fixed income, and 2% real estate.