Pension Solutions Monitor

LGIM America's Pension Solutions Monitor, which estimates the health of a typical US corporate defined benefit pension plan, estimates that pension funding ratios increased throughout July 2022. Based on market movements, the average funding ratio is estimated to have increased from 94.0 percent to 95.0 percent over the month.

Equity markets had a strong recovery over the month with Global Equities¹ and the S&P 500 gaining 7.0% and 9.2%, respectively. Plan discount rates² estimated to have decreased roughly 35 basis points over the month with the Treasury component decreasing 23 basis points and the credit component tightening 12 basis points. Plan assets with a traditional “60/40” asset allocation increased 5.2%. Positive equity performance overcame the increase in liabilities, resulting in a 1.0% increase in funding ratios over the month.

The Pension Solutions Monitor assumes a typical liability profile using an approximate duration of 12 years and 60% MSCI AC World Total Gross Index/40% Bloomberg Barclays US Aggregate Index (“60/40”) investment strategy, and incorporates data from LGIM America research, ICE indices and Bloomberg.

1. “Global equities” referred to here is represented by the MSCI AC World Total Gross Index.
2. Discount rates based on a blend of the Intercontinental Exchange Mature US Pension Plan AAA-A and Intercontinental Exchange Retired US Pension Plan AAA-A discount curves.

For educational purposes only.

Views and opinions expressed herein are as of the date set forth above and may change based on market and other conditions. The material contained here is confidential and intended for the person to whom it has been delivered and may not be reproduced or distributed. The material is for informational purposes only and is not intended as a solicitation to buy or sell any securities or other financial instrument or to provide any investment advice or service. Legal & General Investment Management America, Inc. does not guarantee the timeliness, sequence, accuracy or completeness of information included. Past performance should not be taken as an indication or guarantee of future performance and no representation, express or implied, is made regarding future performance.

These results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results in an actual performance record, these results do not represent actual trading. Because these trades have not actually been executed, these results may have under‐ or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown.

Unless otherwise stated, references herein to "LGIM", "we" and "us" are meant to capture the global conglomerate that includes Legal & General Investment Management Ltd. (a U.K. FCA authorized adviser), LGIM International Limited (a U.S. SEC registered investment adviser and U.K. FCA authorized adviser), Legal & General Investment Management America, Inc. (a U.S. SEC registered investment adviser) and Legal & General Investment Management Asia Limited (a Hong Kong SFC registered adviser). The LGIM Stewardship Team acts on behalf of all such locally authorized entities.

LGIM America's Pension Solutions Monitor, which estimates the health of a typical US corporate defined benefit pension plan, estimates that pension funding ratios decreased throughout June 2022. Based on market movements, the average funding ratio is estimated to have decreased from 97.0 percent to 94.0 percent over the month.

Equity markets saw a decline over the month with Global Equities¹ and the S&P 500 falling 8.4% and 8.3%, respectively. Plan discount rates² were estimated to have increased roughly 30 basis points over the month with the Treasury component rising 10 basis points and the credit component widening 20 basis points. Plan assets with a traditional “60/40” asset allocation decreased 5.7%. The impact of higher discount rates weighed heavily on liability values, but asset performance declined further over the quarter, resulting in a 3.0% decrease in funding ratios over the month.

The Pension Solutions Monitor assumes a typical liability profile using an approximate duration of 12 years and 60% MSCI AC World Total Gross Index/40% Bloomberg Barclays US Aggregate Index (“60/40”) investment strategy, and incorporates data from LGIM America research, ICE indices and Bloomberg.

1. “Global equities” referred to here is represented by the MSCI AC World Total Gross Index.
2. Discount rates based on a blend of the Intercontinental Exchange Mature US Pension Plan AAA-A and Intercontinental Exchange Retired US Pension Plan AAA-A discount curves.

For educational purposes only.

Views and opinions expressed herein are as of the date set forth above and may change based on market and other conditions. The material contained here is confidential and intended for the person to whom it has been delivered and may not be reproduced or distributed. The material is for informational purposes only and is not intended as a solicitation to buy or sell any securities or other financial instrument or to provide any investment advice or service. Legal & General Investment Management America, Inc. does not guarantee the timeliness, sequence, accuracy or completeness of information included. Past performance should not be taken as an indication or guarantee of future performance and no representation, express or implied, is made regarding future performance.

These results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results in an actual performance record, these results do not represent actual trading. Because these trades have not actually been executed, these results may have under‐ or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown.

Unless otherwise stated, references herein to "LGIM", "we" and "us" are meant to capture the global conglomerate that includes Legal & General Investment Management Ltd. (a U.K. FCA authorized adviser), LGIM International Limited (a U.S. SEC registered investment adviser and U.K. FCA authorized adviser), Legal & General Investment Management America, Inc. (a U.S. SEC registered investment adviser) and Legal & General Investment Management Asia Limited (a Hong Kong SFC registered adviser). The LGIM Stewardship Team acts on behalf of all such locally authorized entities.

LGIM America estimates that pension funding ratios were relatively stable throughout May, decreasing slightly from 97.2% to 97.0%. The muted market movements over the month led to limited changes on the asset and liability side. Our calculations indicate the discount rate’s Treasury component increased by 7 basis points while the credit spread component tightened 9 basis points, resulting in a modest 2 basis point fall in the discount rate.¹ Overall, liabilities for the average plan increased 0.6%, while plan assets with a traditional “60/40” asset allocation increased by ~0.4%.²

Source: Bloomberg and LGIM America as of May 31, 2022. Numbers shown above may not add up due to rounding.
1. Discount rates based on a blend of the Intercontinental Exchange Mature US Pension Plan AAA-A and Intercontinental Exchange Retired US Pension Plan AAA-A discount curves.
2. For the average plan LGIM America assumes a 60% allocation to MSCI AC World and a 40% allocation to Bloomberg Aggregate.

LGIM America estimates that pension funding ratios increased ~0.9% throughout April from 96.3% to 97.2%. The primary driver of the modest increase was the fall in liability values due to a rising discount rate. This overshadowed the negative asset performance over the month. Our calculations indicate the discount rate’s Treasury component and the credit spread component increased 54 basis points and 18 basis points respectively, resulting in a 72 basis points increase.¹ Overall, liabilities for the average plan decreased 7.1%, while plan assets with a traditional “60/40” asset allocation decreased by ~6.3%.²

Source: Bloomberg and LGIM America as of April 30, 2022. Numbers shown above may not add up due to rounding.
1. Discount rates based on a blend of the Intercontinental Exchange Mature US Pension Plan AAA-A and Intercontinental Exchange Retired US Pension Plan AAA-A discount curves.
2. For the average plan LGIM America assumes a 60% allocation to MSCI AC World and a 40% allocation to Bloomberg Aggregate.

LGIM America estimates that pension funding ratios increased ~2.8% throughout March from 93.5% to 96.3%. While asset performance for a typical plan with a traditional asset allocation was muted over the month, the increase in pension plan discount rates was the primary driver for the increase in funding ratios. Our calculations indicate the discount rate’s Treasury component increased 37 basis points, while the credit spread component tightened 8 basis points, resulting in a 29 basis point increase.¹ Overall, liabilities for the average plan decreased 2.7%, while plan assets with a traditional “60/40” asset allocation rose by ~0.22%.²

Source: Bloomberg and LGIM America as of March 31, 2022. Numbers shown above may not add up due to rounding.
1. Discount rates based on a blend of the Intercontinental Exchange Mature US Pension Plan AAA-A and Intercontinental Exchange Retired US Pension Plan AAA-A discount curves.
2. For the average plan LGIM America assumes a 60% allocation to MSCI AC World and a 40% allocation to Bloomberg Aggregate.

LGIM America estimates that pension funding ratios increased ~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. This overshadowed the negative asset performance over the month. Our calculations indicate the discount rate’s Treasury and credit spreads components increased 9 basis points and 17 basis points, respectively, totaling a 26 basis point increase.¹ Overall, liabilities for the average plan decreased 2.7%, while plan assets with a traditional “60/40” asset allocation declined by ~2.0%.²

Source: Bloomberg and LGIM America as of February 28, 2022. Numbers shown above may not add up due to rounding.
1. Discount rates based on a blend of the Intercontinental Exchange Mature US Pension Plan AAA-A and Intercontinental Exchange Retired US Pension Plan AAA-A discount curves.
2. For the average plan LGIM America assumes a 60% allocation to MSCI AC World and a 40% allocation to Bloomberg Aggregate.

LGIM America estimates that pension funding ratios were relatively stable throughout January, increasing from 92.6% to 92.8%. The fall in liability values from rising discount rates outpaced the poor equity performance on the asset side, resulting in the 0.2% rise in the average plan's funded status. Our calculations indicate the discount rate’s Treasury component increased 26 basis points while the credit component widened 13 basis points.¹ Overall, liabilities for the average plan decreased 4.1%, while plan assets with a traditional “60/40” asset allocation declined by ~3.8%.²

Source: Bloomberg and LGIM America as of January 31, 2022. Numbers shown above may not add up due to rounding.
1. Discount rates based on a blend of the Intercontinental Exchange Mature US Pension Plan AAA-A and Intercontinental Exchange Retired US Pension Plan AAA-A discount curves.
2. For the average plan LGIM America assumes a 60% allocation to MSCI AC World and a 40% allocation to Bloomberg Aggregate.