Q111 Pension Funding up 5%

April 4, 2011 (PLANSPONSOR.com) – Pension funding ratios increased approximately 5% in the first quarter of 2011, following a 10% rise in the Q410 figure, leading to an estimated Q111 90% average funding.

The new data comes from Legal & General Investment Management America (LGIMA) and its Pension Fiscal Fitness Monitor, a quarterly estimate of the change in health of a typical U.S. corporate defined benefit pension plan, according to a news release.

The Pension Fiscal Fitness Monitor showed the increase in funding ratios came from strong equity market performance as well as an increase in liability discount rates.   Equity markets rallied – the S&P was up nearly 6% – leading the average pension investment strategy to an increase of about 5% for the quarter.  At the same time, bond yields rose resulting in pension discount rates rising 20 basis points from 5.6% to 5.8 %, decreasing the present value of a typical pension liability profile by approximately 2%.

LGIMA’s Head of US Pension Solutions, Aaron Meder said in the news release: “Positive economic momentum continued in the first quarter, leading to higher pension funding levels as equity continued higher and bond yields rose.  The 5% increase in funding ratios marks the third consecutive quarter over quarter increase in funding levels for the typical plan. ”

The Pension Fiscal Fitness Monitor assumes a typical liability profile and 60% equity/40% aggregate bond investment strategy, and incorporates data from LGIMA research and Bank of America Merrill Lynch and Bloomberg data.