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Funded Status of U.S. Corporate Pensions Falls to 90.8 Percent, According to BNY Mellon ISSG

Corporate Plans, Public Plans, Foundations and Endowments All Lose Ground in July

The funded status of the typical U.S. corporate pension plan declined 1.2  percentage points in July 2014 to 90.8 percent, as the steep drop in equity prices at the end of July sent asset values lower, according to the BNY Mellon Investment Strategy and Solutions Group (ISSG).  

"Funded status performance in July was a tale of two markets, July 31st and the rest of the month," said Andrew D. Wozniak, head of fiduciary solutions, ISSG. "Unfortunately, for plan sponsors, July 31st completely reversed what would have been a positive month for funded status, although losses at corporate plans were cushioned by their holdings in long duration corporate bonds.  We estimate that the typical U.S. corporate plan is allocating approximately 26 percent of its assets to long duration bonds as it implements liability driven investing (LDI) programs."

The BNY Mellon Institutional Scorecard for July notes assets at the typical corporate plan fell 1.0 percent and liabilities rose 0.3 percent during the month.  The slight increase in liabilities for corporate plans in July was due to the Aa corporate discount rate remaining at 4.32 percent, the report said.   Plan liabilities are calculated using the yields of long-term investment grade bonds. Lower or flat yields on these bonds result in higher liabilities. 

Year to date, the funded status of corporate plans is down 4.4 percentage points, according to the scorecard.

On the public side, defined benefit plans in July missed their target by 2.0 percent as assets fell 1.4 percent, according to the monthly report.  Year over year, public plans exceeded their target by 3.7 percent, ISSG said.

For endowments and foundations, the real return in June was -2.4 percent, as assets declined 1.7 percent, ISSG said.  Sharp declines in small cap and private equities led the decline. Year over year, foundations and endowments are ahead of their target by 2.7 percent.