Corporate Pension Funding Drops Slightly in September

P&I is reporting that the average corporate pension plan experienced a marginal decline in the funded ratio, as the fall in asset values, primarily driven by lower equity returns, outpaced the slight fall in liabilities, as corporate spreads marginally widened during the month. P&I was referencing four different studies by Wilshire, Legal and General, Northern Trust, and Mercer. Only the Mercer study, which evaluated the funded status of the S&P 1500 companies with DB plans, showed pension funding to be flat during the month.

The average corporate plan’s funded ratio ranged from 77.9% (L&G’s analysis) to 83.1% (Northern’s review), while the Mercer and Wilshire output reflected more consistency with Northern Trust findings of roughly 83%. In any case, funded ratios are down about 4% this year, as discount rates have declined by about 57 bps (NT’s estimate), while asset levels are flat to up marginally.

Given that the average corporation’s funded ratio is now below 85%, PBGC variable premiums are kicking in. As a reminder, plans pay 4.5% ($45) in variable premiums for every $1,000 in UVB. It might make sense to close that gap with additional contributions or the injection of proceeds from a bond offering given the incredibly low rates. We’ll discuss that strategy in a future blog post. Have a great day!

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