Thursday, November 06, 2014NEW YORK -- The funded status of the typical U.S. corporate pension plan fell 0.4 percentage point to 89.5% in October as liabilities increased faster than assets. Public defined-benefit plans, endowments and foundations beat their targets in October on the strength of rising asset values.
For the typical corporate plan in October, assets rose 1.5%, trailing the 1.9% increase in liabilities, according to the BNY Mellon Institutional Scorecard from the BNY Mellon Investment Strategy and Solutions Group. This funded status is down 5.7% from the December 2013 high of 95.2%, according to the scorecard.
The change is attributed the higher assets for corporate plans in October to the improvement in U.S. equities, although falling international equities restrained the improvement in asset values. The higher liabilities for corporate plans in October resulted from the Aa corporate discount rate falling 11 basis points to 4.2% 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 at the BNY Mellon Group. "For the first two weeks, falling stock markets and bond yields drove the funded status down to 84.4% on Oct. 15. For the last two weeks of the month, the funded status rebounded 5.1%."
Equity markets began rebounding Oct. 16 following the release of positive economic data.
Public defined-benefit plans in October beat their targets by 0.6% as assets rose 1.2%, according to the report. Year over year, public plans have underperformed their targeted returns by 1.4%.
For endowments and foundations, the real return in October was 0.8% as assets returned 1.2%. Real estate investment trusts, which comprise 8% of the typical asset portfolio, gained 7.3% over the month. Year over year, foundations and endowments are behind their inflation plus spending target by 0.9%.
The BNY Mellon Investment Strategy and Solutions Group is a division of The Bank of New York Mellon.
SOURCE: BNY Mellon.
Published by The Business Journal, Youngstown, Ohio.
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