Gentle April for Private-Sector DB Plans

Mid-spring was mild for private-sector pension plans, according to several analyses that generally report modest improvements in their fortunes in April. 

This marks a continuation of a trend that has held sway all year. Corporate defined benefit plans had a mild winter, and showed some improvement in March as well. 

Funded Status

Corporate pension plans’ funded status generally improved by around 1 percentage point. 

Wilshire reports that the aggregate funded ratio for U.S. corporate pension plans improved by 1.1 percentage points in April, largely the same as the 1-percentage point increase it reported took place in March.  The funded ratio moved from 109.7% to 110.8% in April, they say.

Insight Investment, too, reports an improvement in corporate pension plans’ funded status of just over 1 percentage point. They say that their ratio improved from 112.2% to 113.5%, an increase of 1.3 percentage points. 

April was a little chillier to October Three than the other analysts. They track two hypothetical plans—one a traditional plan, and another more conservatively invested. The funded status of the traditional plan improved by less than 1 percentage point in April, they say, and the conservative plan lost ground—but only by a fraction of 1%.

Why? 

October Three attributed the mixed results in April to higher interest rates largely offset by calmer levels of stock market activity for both of its model plans.
Insight Investment and Willshire both attributed the modest improvement in funded status to a drop in plan assets offset by a greater drop in plan liabilities. 

Insight Investment, Wilshire and October Three all reported that those drops happened by similar amounts. Insight Investment found a drop in assets of 4.4% and a drop in liabilities of 5.5%; Willshire, 4.2% and 5.5%, respectively; and October Three, 4% and 3%-5%, respectively. 

Wilshire Managing Director Ned McGuire in his remarks on Wilshire’s findings said that the funded status improvement they saw in April was due to greater Treasury yields. That, he said, “led to the largest monthly decline in liability values since September 2022”; he continued that corporate bond yields “were estimated to have increased by over 45 basis points." 

Be Prepared 

Ciaran Carr, Head of the Client Solutions Group, North America at Insight Investment, in his comments on the April results notes that there are factors for which one may want to be prepared. Said Carr, “Markets continue to wrestle to understand the future path of interest rates in the face of nagging inflation, resulting in higher-than-normal interest rate volatility. Greater alignment of pension assets with liabilities can reduce the whipsawing of funded statuses brought about by changes in rates.”

The Big Picture 

The improvement in funded status may have been modest in April, but McGuire put that in a more positive big-picture context, remarking that their estimate of a corporate pension plan funded ratio of 110.8% “remains at its highest in decades." 

October Three, too, was more positive about the overall results than about those of the month of April itself. They say that their traditional plan may have improved its status by under 1% in April, but its funded status has improved by more than 6% for the year. Similarly, the status of its conservative plan may have lost a little ground in April but has improved by more than 1% for the year so far.