The funded status of a typical corporate pension plan increased in the second quarter as equities rebounded off of March lows, credit spreads contracted, and Treasury yields were little changed. The funded status of a total-return plan rose by around 0.4%. Funded status posted a bigger jump for plans with higher interest rate hedges, including corporate bonds. The hypothetical NEPC frozen pension plans recorded a 1.3% increase in funded status for the quarter.
The funded status of a total-return plan fared worse than a hedged plan even as equities rebounded after restrictions related to the COVID-19 outbreak were eased; falling credit spreads fueled a 12% increase in liabilities.
The LDI-focused plan saw less volatility in funded status as its higher credit hedge ratio protected it from contracting credit spreads and subsequent falling discount rates. The plan is 76% hedged, as of June 30.
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