January 4, 2011 / 8:28 PM / 9 years ago

Strong stock market gives boost to pension funds

BOSTON (Reuters) - Stock market gains late last year helped put U.S. pension funds on a sounder footing, a new report released on Tuesday said.

Funding ratios of pension plans, on average, increased by 11 percent in the fourth quarter, research group Legal & General Investment Management America said.

“The 11 percent increase in funding ratios marks the largest quarter over quarter change since the inception of the Pension Fiscal Fitness Monitor time-series, dating back over 15 years,” Aaron Meder, LGIMA’s head of US Pension Solutions, said in a statement.

On average, he estimated, U.S. corporate pension plans are now nearly 90 percent funded.

Laws require companies to put new money into their pension funds every year, but the financial crisis has left many companies behind.

Meder cited both the strong stock market rally during the last three months of the year and a strong rise in bond yields as reasons for the improvement.

In the third quarter, the funding ratio increased by only 2 percent.

The Standard & Poor’s 500 index gained nearly 11 percent in the fourth quarter. This helped push up the average pension fund to gain roughly 7 percent for the quarter. Rising bond yields resulted in pension discount rates rising 30 basis points from 5.3 to 5.6 percent, Meder said, noting that this decreased the present value of a typical pension liability profile by approximately 4 percent.

Reporting by Svea Herbst-Bayliss; Editing by Steve Orlofsky

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