August 2022

US pension funding ratios increased throughout August

LGIM America's Pension Solutions Monitor, which estimates the health of a typical US corporate defined benefit pension plan, estimates that pension funding ratios moderately increased throughout August 2022. Based on market movements, the average funding ratio is estimated to have increased from 95.0 percent to 95.6 percent over the month.

Equity markets had a weak month with Global Equities1 and the S&P 500 dropping 3.6% and 4.1%, respectively. Plan discount rates2 were estimated to have increased roughly 43 basis points over the month with the Treasury component increasing 40 basis points and the credit component widening a touch by 3 basis points. Plan assets with a traditional “60/40” asset allocation decreased 3.3%; however, the fall in liabilities outweighed the drop in assets over the month, resulting in a 0.6% increase in funding ratios.

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.

 

Pension funded status market summary:
  • Equity markets performed negatively with global equities down roughly 3.6%.
  • Plan liabilities decreased due to higher discount rates.
  • Funding ratio levels increased slightly as the decrease in liabilities outpaced the drop in assets.

Funded status risk

Aug 2022

Equities

Interest rates

Credit spreads

Sources: LGIM America, ICE indices and Bloomberg. Data as of August 31, 2022.


 

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.

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