US Corporate Pensions’ Funded Status Edges Higher in November

Volatility in equity markets continues to concern plan sponsors.

The estimated aggregate funding level of US corporate pension plans edged higher in November, according to data from consulting firms Mercer and Legal & General Investment Management America (LGIMA).

Rising US equity markets helped raise the funded status of pensions sponsored by S&P 1500 companies 1% in November to 91%, according to Mercer. The firm said the estimated aggregate deficit decreased to $197 billion from $208 billion at the end of October.

“We saw a slight increase in pension funded status thanks to a rise in equity markets at the end of November,” Matt McDaniel, a partner in Mercer’s US Wealth business, said in a release. “We continue to see volatility in equity markets which is a concern for plan sponsors. Many plan sponsors with glide paths in place were able to lock in gains earlier this year while others may be in a tough position as market volatility has continued.”

The S&P 500 index increased 1.79%, while the MSCI EAFE index decreased 0.31% in November, and typical discount rates for pension plans as measured by the Mercer Yield Curve decreased by one basis point to 4.42% during the month.

Mercer provides estimates for the aggregate funded status position of plans sponsored by S&P 1500 companies on a monthly basis. The estimates are based on each company’s latest available year-end statement, and by projections to Nov. 30 in line with financial indices. The estimates include US domestic qualified and non-qualified plans, along with all non-domestic plans.

At the end of November, the estimated aggregate value of the pension plans’ assets was $1.88 trillion, compared with estimated aggregate liabilities of $2.08 trillion, which incorporates changes in financial markets through Nov. 30, changes to the S&P 1500 constituents, and newly released financial disclosures. This is compared to estimated aggregate assets of $1.87 trillion and estimated aggregate liabilities of $2.08 trillion as of Oct. 31.

Meanwhile, LGIMA reported that the average corporate pension plan’s funding ratio rose 0.7% to 90.3% during November, which it attributed to widening credit spreads and positive equity returns that were somewhat offset by a drop in Treasury rates. 

“The positive price action was led by consumer confidence remaining at a higher level, largely positive economic data, new trade agreements with South Korea, Canada, and Mexico, and Fed Chair Powell stating that rates are ‘just below’ the neutral level, implying that rate hikes may slow,” said LGIMA in its monthly pension monitor report.

However, the report cited “significant volatility” in November, which it said was spurred by uncertainty surrounding the US midterm elections, risk of a US-China trade war, and slowing global growth, among other concerns.

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