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

Falling stock markets drove the funded status for the typical U.S. corporate pension plan to 89.9 percent in September, the lowest level since August 2013, as falling asset values also resulted in public plans, foundations and endowments missing their return targets, according to the BNY Mellon Investment Strategy and Solutions Group (ISSG).  

The funded status of the typical U.S. corporate pension plan in September fell 0.2 percentage points, despite liabilities falling 2.6 percent, according to the BNY Mellon Institutional Scorecard. Assets for the corporate plans fell 2.7 percent, outpacing the fall in liabilities, ISSG said.

This funded status is now down 5.3 percent from the December 2013 high of 95.2 percent, according to the scorecard.

The lower liabilities for corporate plans in September resulted from the Aa corporate discount rate rising 20 basis points to 4.31 percent over the month.  Plan liabilities are calculated using the yields of long-term investment grade bonds.  Higher yields on these bonds result in lower liabilities. 

"After benefiting from the first monthly decline in liabilities of more than one percent since November 2013, pension plans still failed to improve their funded status," said Andrew D. Wozniak, head of fiduciary solutions, ISSG. "Although U.S. large cap equities outperformed the liabilities over the month, they were the only major equity class to do so. A sustained divergence between U.S. large cap equity returns and other public equity classes could continue the downward trend in funded status."

Public defined benefit plans in September fell short of their target by 3.5 percent as assets fell 2.9 percent, according to the monthly report.  Year over year, public plans have met their return of target of 7.5 percent, ISSG said.

For endowments and foundations, the real return in September was -3.6 percent, as assets declined 3.1 percent, ISSG said.   Private equity and real estate investment trusts, which comprise 15 percent and eight percent, respectively, of the asset portfolio, fell 5.5 percent and 6.3 percent, respectively, over the month. Year over year, foundations and endowments are behind their inflation plus spending target by 0.1 percent, ISSG said.