February 04, 2015

Funded Status of U.S. Corporate Pensions Falls Nearly Five Percent in January, According to BNY Mellon ISSG

Corporate Plans, Public Plans, Foundations and Endowments All Miss Targets

NEW YORK, Feb. 4, 2015 /PRNewswire/ -- The funded status of the typical U.S. corporate pension plan declined 4.9 percentage points to 82.4 percent in January as the interest rate that determines liabilities fell to an all-time low, according to the BNY Mellon Investment Strategy and Solutions Group (ISSG).  

The Aa corporate discount rate, which is the key interest rate that determines these liabilities, finished the month at 3.56 percent, sending liabilities seven percent higher.  While assets for the typical corporate plan increased 1.0 percent in January, this rise was swamped by the massive increase in liabilities, according to the BNY Mellon Institutional Scorecard.  The rise in assets also was tempered by the weak performance of U.S. equities, which detracted from improvements in other asset classes, ISSG said.

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

Public defined benefit plans, endowments and foundations also missed their return targets, as all categories were hurt by weak U.S. equities markets, ISSG said. The funded status for the typical corporate plan is now down 12.8 percent from the December 2013 high of 95.2 percent, according to the scorecard.

The improvement in corporate plan assets in January was driven by gains in fixed income and emerging markets equities. Public plans benefited from the performance of real estate investment trusts and high yield fixed income, but were weighed down by falling values of U.S. equities during the month, ISSG said. 

Endowments and foundations benefited from allocations to emerging markets equity and hedge funds, but also could not keep up with their targets due to weak equity markets in the U.S., ISSG said.

"The huge fall in funded status in January combined with the changes in the mortality assumptions that many plans implemented in December 2014 means that many corporate plans saw their funded status drop by more than 10 percentage points in two months," said Andrew D. Wozniak, head of fiduciary solutions, ISSG.  "This could be a signal to plans to take on more risk by making such moves as increasing their exposures to equities and alternatives or going to shorter duration fixed income.  Shorter duration fixed income may better position them to improve their funding if rates rise."

Public defined benefit plans in January missed their targets by 0.7 percent as assets declined 0.1 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 January was negative 0.5 percent, as assets returned negative 0.3 percent, ISSG said.   Year over year, endowments and foundations are behind their inflation plus spending target by 1.2 percent, ISSG said.

Notes to Editors:

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 $1.7 trillion in assets under management. It encompasses BNY Mellon's affiliated investment management firms, wealth management services and global distribution companies. More information can be found at www.bnymellon.com.

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of Dec. 31, 2014, BNY Mellon had $28.5 trillion in assets under custody and/or administration, and $1.7 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com, or follow us on Twitter @BNYMellon.

All information source BNY Mellon as of December 31, 2014. This press release is qualified for issuance in the US only and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorized. This press release is issued by BNY Mellon Investment Management to members of the financial press and media and the information contained herein should not be construed as investment advice.  Past performance is not a guide to future performance.  A BNY Mellon Company.                                  


Mike Dunn

+1 212 922 7859



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