Public Plans Meet Targets as Foundations and Endowments Lose Ground
The funded status of the typical U.S. corporate pension plan declined 1.1 percentage points in April 2014 to 91.0 percent as liabilities increased faster than assets for the second consecutive month, according to the BNY Mellon Investment Strategy & Solutions Group (ISSG).
The BNY Mellon Institutional Scorecard for April noted liabilities increased 2.1 percent, outpacing the 0.9 percent increase in assets at the typical corporate plan during the month.
Year to date, the funded status of corporate plans is down 4.2 percentage points, according to the scorecard.
Public defined benefit plans met their target returns, while endowments and foundations posted negative real returns, ISSG said.
"Significant declines by small cap stocks and private equity were the primary reason that corporate plan returns did not keep pace with the liabilities," said Andrew D. Wozniak, head of fiduciary solutions, ISSG. "With the funded status of corporate plans down from their high of 95.2 percent in December 2013, many plan sponsors continue to maintain high allocations to equities as they wait for a better environment to reduce their exposure to market risk."
Todd W. Wakefield, lead portfolio manager on The Boston Company Asset Management's U.S. small and midcap teams, attributed the fall in small cap stocks to the sharp rotation from growth to value stocks during April. "Small caps have a disproportionate amount of growth stocks in their index," he said.
The increase in liabilities for corporate plans in April was due to a 13-basis-point decline in the Aa corporate discount rate to 4.43 percent, the report said. Plan liabilities are calculated using the yields of long-term investment grade bonds. Lower yields on these bonds result in higher liabilities.
On the public side, defined benefit plans met their target as assets led by large cap equities and real estate investment trusts in April rose 0.6 percent. Year over year, public plans are ahead of their target by 1.8 percent, ISSG said.
For endowments and foundations, the real return in April was -0.2 percent, missing the target for spending plus inflation, ISSG said. This underperformance was driven largely by their exposure to private equity, which declined 2.3 percent in April, the second consecutive month of negative performance, the report said. Year over year, foundations and endowments are ahead of their target by 2.2 percent.
The BNY Mellon Investment Strategy and Solutions Group is a division of The Bank of New York Mellon.
The Boston Company Asset Management, LLC, a BNY Mellon Investment Management boutique, provides active equity investment-management services for corporate, public, mutual funds and union sponsored and jointly trusteed retirement plans, endowments and foundations. Assets are managed by The Boston Company as well as its personnel acting as dual officers of either The Dreyfus Corporation or 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.