Corporate Plans, Public Plans, Foundations and Endowments Exceed Targets
The funded status of the typical U.S. corporate pension plan increased 1.4 percentage points in June 2014 to 92.0 percent, driven by rising asset values, according to the BNY Mellon Investment Strategy and Solutions Group (ISSG).
"Corporate plans also benefited from a slight rise in interest rates, which reduced liabilities," said Andrew D. Wozniak, head of fiduciary solutions, ISSG. "June ended a string of three consecutive months of falling rates, which had been driving liabilities higher."
The BNY Mellon Institutional Scorecard for June notes assets at the typical corporate plan rose 1.4 percent and liabilities decreased 0.2 percent during the month.
Year to date, the funded status of corporate plans is down 3.2 percentage points, according to the scorecard.
Public defined benefit plans, endowments and foundations also benefited from strong asset returns and exceeded their return targets, ISSG said.
"Equities have continued rallying since April as economic data appears to indicate strengthening global growth," said Wozniak. "If the funded status continues to rise, we expect more plans to implement strategies that better insulate them from future market volatility."
The decrease in liabilities for corporate plans in June was due to a 4-basis-point increase in the Aa corporate discount rate to 4.32 percent, the report said. Plan liabilities are calculated using the yields of long-term investment grade bonds. Higher yields on these bonds result in lower liabilities.
On the public side, defined benefit plans in June exceeded their target by 1.0 percent as assets led by small cap equities and private equity rose. Year over year, public plans exceeded their target by 9.0 percent, ISSG said.
For endowments and foundations, the real return in June was 1.0 percent, exceeding the target for spending plus inflation, ISSG said. This outperformance was driven largely by their exposure to private equity, which accounts for approximately 15 percent of the typical portfolios for endowments and foundations. Year over year, foundations and endowments are ahead of their target by 8.2 percent.
The BNY Mellon Investment Strategy and Solutions Group is a division of The Bank of New York Mellon.
BNY Mellon Investment Management is one of the world's leading investment management organizations and one of the top U.S. wealth managers, with $1.6 trillion in assets under management. It encompasses BNY Mellon's affiliated investment management firms, wealth management services and global distribution companies.