The average pension funding status ratio for the first quarter of 2015 fell from 83.1% to 81.7%, reports Legal & General Investment Management America Inc. (LGIMA).
Funded status levels for the average plan with a traditional allocation fell about 1.3% this quarter, estimates Don Andrews, LGIMA’s head of liability-driven investing (LDI) strategy. The drop occurred as liabilities for average plans outpaced assets. Global equity markets were up approximately 2.4%. Modestly higher equity markets were not enough to offset the impact of lower interest rates, Andrews explains. “It was a better quarter for plans that had previously implemented liability benchmarked de-risking strategies, as their asset portfolios slightly outperformed plan liabilities.”
The LGIMA research was conducted using the Pension Fiscal Fitness Monitor, which assumes a typical liability profile and a 60% global equity to 40% aggregate bond investment strategy.
“We continue to see significant interest in equity replication strategies from corporate pension plans, as plan sponsors seek to utilize capital most efficiently to control funded status outcomes,” says Andrews. “In particular, option-based strategies optimized for the current market environment have been popular with our clients.”
LGIMA is a Chicago-based registered investment adviser (RIA) specializing in index, active fixed-income and LDI strategies for the U.S. institutional market.