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Funded Status of U.S. Corporate Pensions Rises to 91.6 Percent, According to BNY Mellon ISSG

Public Plans, Foundations and Endowments Miss Targets

The funded status of the typical U.S. corporate pension plan increased 1.5 percentage points in May to 91.6 percent, but public plans, foundations and endowments missed their targets for the month as flat markets failed to raise the value of their assets, according to the BNY Mellon Investment Strategy and Solutions Group (ISSG).  

The corporate plans benefited from lower liabilities, as discount rates rose for the fourth straight month, according to the BNY Mellon Institutional Scorecard.

For the typical U.S. corporate plan, assets in May fell 0.2 percent; while liabilities declined 1.9 percent as the Aa corporate discount rate rose 15 basis points to 4.20 percent. 

Plan liabilities are calculated using the yields of long-term investment grade bonds.  Higher yields on these bonds result in lower liabilities. 

The funded status is at its highest level since it was 92.0 percent in June 2014, and it is 4.3 percentage points higher than at the beginning of the year.

"The rising rates have been the biggest driver in funded status in 2015," said Andrew D. Wozniak, head of fiduciary solutions, ISSG.  "While asset returns have only been approximately three percent this year, the funded status has risen more than four percentage points because liabilities have fallen."

Public defined benefit plans in May missed their return target by 0.7 percent as assets declined 0.1 percent, according to the monthly report.  Year over year, public plans are 3.5 percent below their annual return target, ISSG said.

For endowments and foundations, the real return in May was -0.6 percent as assets were flat, ISSG said.   Year over year, endowments and foundations are behind their inflation plus spending target by 2.2 percent, ISSG said.