Public Plans, Foundations and Endowments All Beat Targets in October
The funded status of the typical U.S. corporate pension plan fell 0.4 percentage points to 89.5 percent in October as liabilities increased faster than assets, according to the BNY Mellon Investment Strategy and Solutions Group (ISSG).
Public defined benefit plans, endowments and foundations beat their targets in October on the strength of rising asset values, ISSG said.
For the typical corporate plan in October, assets increased 1.5 percent, trailing the 1.9 percent increase in liabilities, according to the BNY Mellon Institutional Scorecard.
This funded status is now down 5.7 percent from the December 2013 high of 95.2 percent, according to the scorecard.
ISSG attributed the higher assets for corporate plans in October to the improvement in U.S. equities, although falling international equities restrained the overall improvement in asset values.
The higher liabilities for corporate plans in October resulted from the Aa corporate discount rate falling 11 basis points to 4.20 percent over the month. Plan liabilities are calculated using the yields of long-term investment grade bonds. Lower yields on these bonds result in higher liabilities.
"While the funded status of corporate plans was slightly down for the month, the early part of the month was much worse," said Andrew D. Wozniak, head of fiduciary solutions, ISSG. "For the first two weeks, falling stock markets and bond yields drove the funded status down to 84.4 percent on October 15. For the last two weeks of the month, the funded status rebounded 5.1 percent."
Equity markets began rebounding on October 16 following the release of positive economic data.
Public defined benefit plans in October beat their targets by 0.6 percent as assets rose 1.2 percent, according to the monthly report. Year over year, public plans have underperformed their return target by 1.4 percent, ISSG said.
For endowments and foundations, the real return in October was 0.8 percent, as assets returned 1.2 percent, ISSG said. Real estate investment trusts, which comprise eight percent of the typical asset portfolio, gained 7.3 percent over the month. Year over year, foundations and endowments are behind their inflation plus spending target by 0.9 percent, ISSG said.
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.