{"id":1527,"date":"2022-03-10T16:28:43","date_gmt":"2022-03-10T21:28:43","guid":{"rendered":"https:\/\/www.nepc.com\/private-wealth\/?post_type=newsroom&p=1527"},"modified":"2022-03-28T16:33:16","modified_gmt":"2022-03-28T20:33:16","slug":"plansponsor-corporate-db-plans-see-slight-funded-status-improvement-in-february","status":"publish","type":"newsroom","link":"https:\/\/www.nepc.com\/private-wealth\/newsroom\/plansponsor-corporate-db-plans-see-slight-funded-status-improvement-in-february\/","title":{"rendered":"PlanSponsor: Corporate DB Plans See Slight Funded Status Improvement in February"},"content":{"rendered":"
[vc_row][vc_column width=”1\/1″][vc_column_text uncode_shortcode_id=”911659″]NEPC was mentioned in PlanSponsor’s recent article. View the article on PlanSponsor’s site here<\/a>.<\/p>\n

<\/p>\n

The aggregate funded ratio for U.S. corporate defined benefit plans sponsored by S&P 500 companies increased by an estimated 0.9 percentage points month-over-month in February to end the month at 96.1%, according to Wilshire.<\/p>\n

The monthly change in funding resulted from a 3.3% decrease in liability values partially offset by a 2.4% decrease in asset values. The aggregate funded ratio is estimated to have increased by 4.9 percentage points over the trailing 12 months.<\/p>\n

\u201cDespite this month\u2019s volatility, February\u2019s estimated month-end funded ratio is at its highest level since year-end 2007, estimated at 107.8%, before the Great Financial Crisis,\u201d says Ned McGuire, managing director, Wilshire. \u201cFebruary saw significant volatility for both asset and liability values. The liability value decreased due to the approximately 20 basis point increase in corporate bond yields used to value corporate pension liability values, while U.S. equities, represented by the FT Wilshire 5000 Index, experienced a second consecutive monthly decline for the first time since October 2020, partly due to the geopolitical risks around the Russian invasion of Ukraine at the end of the month. Long Treasury yields nearly returned to their month-end January levels after the yield on the 10-year closed above the 2 percentage point threshold on February 10, for the first time since the end of July 2019.\u201d<\/p>\n

The rise in market interest rates resulted in decreasing pension liabilities for the month, notes River and Mercantile in its\u00a0\u201cUS pension briefing \u2013 February 2022.\u201d<\/a>\u00a0However, with a lower stock market and higher interest rate environment, pension assets also saw a decrease for the month. Pension funded status remained level or saw slight improvement depending on the plan asset allocation, it says.<\/p>\n

\u201cFebruary\u2019s mixed bag of lower liabilities and lower assets due to increasing discount rates and poor equity returns continue to highlight the volatility in the markets right now,\u201d says Michael Clark, managing director in River and Mercantile\u2019s Denver office. \u201cSo far in March, Treasury rates have pulled back, but we\u2019ve seen credit spreads widen due to the current uncertainty with the global issues related to the Russia-Ukraine conflict in Europe. The Fed meets mid-March and it\u2019s expected that they will raise the Fed Funds Rate based on comments from Federal Reserve Chair Jerome Powell. The rate increase is meant to counter rising inflation but is being sensitively balanced against what is going on in Europe. There is still likely going to be lots of volatility ahead with discount rates and equity markets as we head into the spring.\u201d<\/p>\n

Insight Investment estimates that corporate DB plan funded status increased by 0.5% from 94.9% to 95.4% during February, as assets declined by 2.4% and liabilities declined by 2.9%. \u201cThe improvement was driven by increases in discount rates during the month, which more than offset weak returns from growth assets,\u201d says Sweta Vaidya, North American head of solution design at Insight Investment. \u201cAs we try to assess the severity of current geopolitical events, we should be mindful of how resilient our pension portfolios are against potential inflation risk and equity volatility.\u201d<\/p>\n

\u201cHigher interest rates and lower stock prices have shrunk pension balance sheets in early 2022, but most plans have enjoyed stable or improved funded status so far this year,\u201d says Brian Donohue, a partner at October Three Consulting in Chicago. Both model plans\u00a0October Three tracks<\/a>\u00a0were close to even on the month. Plan A improved less than 1%, while the more conservative Plan B held steady. Plan A is a traditional plan (duration 12 at 5.5%) with a 60\/40 asset allocation, while Plan B is a largely retired plan (duration 9 at 5.5%) with a 20\/80 allocation with a greater emphasis on corporate and long- duration bonds.<\/p>\n

NEPC reports<\/a>\u00a0that the funded status of its hypothetical open, total-return plan increased by 2.0% as equity losses were offset by declining liability values. The funded status of its liability-driven investing-focused plan gained 0.2%, with asset losses stemming from both equities and long-duration bonds offset by higher discount rates. That plan is 77% hedged as of February 28.<\/p>\n

LGIM America estimates that pension funding ratios increased approximately 0.7% throughout February from 92.8% to 93.5%. The primary driver of the modest increase was the fall in liability values due to a rising discount rate, according to its\u00a0Pension Solutions Monitor<\/a>, which overshadowed the negative asset performance over the month.<\/p>\n

Overall, liabilities for the average plan decreased 2.7%, while plan assets declined by approximately 2.0%, LGIM America says. For the average plan, LGIM America assumes a 60% allocation to MSCI AC World and a 40% allocation to Bloomberg Aggregate.<\/p>\n[\/vc_column_text][\/vc_column][\/vc_row]\n<\/div>","protected":false},"excerpt":{"rendered":"

[vc_row][vc_column width=”1\/1″][vc_column_text uncode_shortcode_id=”911659″]NEPC was mentioned in PlanSponsor’s recent article. View the article on PlanSponsor’s site here.<\/p>\n","protected":false},"author":95,"featured_media":1528,"template":"","meta":{"content-type":"","footnotes":""},"newsroom_categories":[81],"newsroom_tags":[82,83],"class_list":["post-1527","newsroom","type-newsroom","status-publish","has-post-thumbnail","hentry","newsroom_categories-in-the-news","newsroom_tags-press","newsroom_tags-press-coverage"],"yoast_head":"\nPlanSponsor: Corporate DB Plans See Slight Funded Status Improvement in February - NEPC - Private Wealth<\/title>\n<meta name=\"description\" content=\"NEPC was mentioned in PlanSponsor's recent article. 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