U.S. corporate pension funding status increased in September, despite a decline in equities. September’s funding status was a return to the norm, following an August that saw pension funding decline for the first time this year. 

Insight Investment found that pension funding status improved by one percentage point in August, to 107.5% from 106.5%. Equity losses were offset by a roughly 40 bps increase in discount rates, causing liabilities to decline faster than assets. Assets decreased by 4.5% in September, while liabilities decreased by 5.4%. Asset returns were negative 3.9%, and liability returns were negative 4.7% for the month. Insight Investments’ model follows the funding status of the top 100 corporate pension plans in the U.S. 

“As funded statuses continue to rise towards the end of the year, we are having more conversations about end-state objectives: pension risk transfer or self-sufficiency,” said Sweta Vaidya, head of solution design at Insight Investment, in the report. “More plan sponsors are considering long-term self-sufficiency and exploring how they may be able to extract value from their pension surplus.” 

Treasury Rate Increases as Credit Spreads Narrow

Aon also reported an increase in the aggregate funding ratios within corporate pension plans in the S&P 500. Aon’s tracker found that pension funding increased 0.8 percentage points, to 102.3% from 101.5%, in September. Pension assets declined in September, with a negative 3.9% return. 

“The month-end 10-year Treasury rate increased 50 bps relative to the August month-end rate, and credit spreads narrowed by 3 bps,” Aon’s report stated. “This combination resulted in an increase in the interest rates used to value pension liabilities from 5.32% to 5.79%. Given a majority of the plans in the U.S. are still exposed to interest-rate risk, the decrease in pension liability caused by increased interest rates offset the negative effect of asset returns on the funded status of the plan.” 

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