S&P 500 Pensions Approaching 91% Funded

Increased discount rates, global equity returns generate uptick in the ratios for plans in the index. 

The average funded ratio for the pension plans of S&P 500 companies crept to nearly 91% in September, a multi-year high for those in the index.

source: Northern Trust

Higher discount rates and decent global equity gains helped drive the average funded status to 90.7% over the month. Rates rose to 3.92% from 3.82% during the period, with the equity markets rising 0.4%, according to Northern Trust Asset Management.

“US equity markets are at all-time highs and US long bond yields are near multi-year highs,” said Dan Kutliroff, head of Northern Trust’s OCIO business strategy. “This has helped drive funded ratios to their highest level in a decade.”

Kutliroff suggested plan sponsors consider “preserving some of those gains” by shifting some equity allocations to fixed-income investments that “behave more like the liabilities” to help mitigate risk in the case of a market correction.

The top funding ratios by industry for September were the financial, information technology, and utilities industries. The financial sector stood at 97% funded, with about $6 billion in aggregate liabilities, and IT was 89% funded, with about $19 billion worth of deficit. The utilities industry sat at 88% funded, and has $22 billion in obligations.

source: Northern Trust

Industrials, however, while not the lowest-funded bracket in the S&P index at 81%, has the largest debt load with $125 billion in liabilities. The second-highest debt was the 86% funded consumer discretionary area, which held $35 billion in aggregate obligations. S&P 500 funds in the industrial category account for about $85 billion in assets.

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