Funding ratios for US company pension plans are now over 100%, according to three new reports, thanks to rising discount rates that are driving down pension liabilities.
Milliman, in its latest report on the Milliman 100 Pension Funding Index which estimates the funding ratio of the 100 largest US corporate pension funds, said the estimated funding ratio reached 112.8% as of October 31, against 108.8% at September 30. .
The increase was driven by an increase in the discount rate to 5.71% as of October 31, from 5.36% as of September 30. Milliman also estimated stable investment returns of 0.21% during the month.
“Although stock markets saw significant growth in October, the Milliman 100 plans are heavily weighted in fixed income securities, where rising interest rates weighed on performance,” said Zorast Wadia, principal actuary and consultant at Milliman and co-author of the pension capitalization index, in a press release on Friday. “Nevertheless, October’s discount rate increase helped the plans achieve their largest monthly funding gain and highest funded ratio so far this year.”
In his monthly report, Legal and general investment management America estimated the average funded ratio for the typical U.S. company pension plan was 100.7% as of Oct. 31, down from 95.6% a month earlier.
LGIMA, in its latest Pension Solutions Monitor, said the estimated average capitalization ratio jumped in October due to the good month in global equity markets. The monitor cited the S&P 500 Index and the MSCI AC World Total Gross Index with returns of 8.1% and 6.1% respectively during the period.
According to LGIMA, plan discount rates increased by around 27 basis points during the month, with the cash component increasing by 36 basis points and the credit component tightening by 9 basis points.
The Pension Solutions Monitor assumes a typical liability profile using a duration of approximately 12 years and an asset allocation of 60% MSCI AC World Total Gross Index and 40% Bloomberg US Aggregate Bond Index.
In a third monthly report, Insight Investment said the funded ratio for U.S. corporate pension plans rose to 105.2% in October from 100.4% the previous month.
The marked improvement in the funded ratio during the month is the result of Insight Investment estimating that assets increased by 0.3 percentage points and liabilities fell by 4.3 percentage points.
The average discount rate rose to 5.61% as of October 31, from 5.26% a month earlier, according to Insight.