NEW YORK, September 5, 2013 — The funded status of typical U.S. corporate pension plans fell 0.1 percentage points to 88.1 percent in August, according to the BNY Mellon Investment Strategy & Solutions Group (ISSG). Corporate pension plans, public pension plans, and endowments and foundations in the U.S. all lost ground financially in August as rising interest rates led to lower values for most asset classes, ISSG said.
Despite the lower asset values, corporate pension plans benefited from the rising rates as they pushed liabilities lower, according to the BNY Mellon Institutional Scorecard. Year to date, the funded ratio for the corporate plans is up 11.0 percentage points, ISSG said.
The decline in liabilities for corporate plans resulted from the 13 basis-point-increase in the Aa corporate discount rate, which increased to 4.78 percent in August. Plan liabilities are calculated using the yields of long-term investment grade bonds. Higher yields on these bonds result in lower liabilities.
However, the falling liability values from rising bond yields were not enough to offset the decline in assets from struggling US equity markets, according to the ISSG report. Overall, typical corporate benefit plan assets in August fell 1.6 percent as liabilities fell 1.5 percent, the report said.
For endowments and foundations, the net return over spending and inflation was -2.1 percent in August, as plan assets fell 1.5%. Over the past 12 months, plan assets are up 9.4%, beating the spending and inflation target by 2.8 percent.
For public plans, the excess return over the annualized 7.5 percent return target was -2.2 percent in August, as assets fell 1.6 percent over the month. Public plan assets must earn at least 0.6 percent each month to keep pace with the 7.5 percent annual target.
"Market volatility and rising interest rates contributed to lower assets for all three institutional categories," said Jeffrey B. Saef, managing director, BNY Mellon Investment Management, and head of the ISSG. "Endowments and foundations benefited from their 22 percent allocation to hedge funds and absolute return strategies, which helped buoy plan assets. Public plans were hurt by their relatively high allocation to equities, which comprised more than half of the typical U.S. public plan portfolio."
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 $1.4 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 http://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 June 30, 2013, BNY Mellon had $26.2 trillion in assets under custody and/or administration, and $1.4 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 http://www.bnymellon.com/, or follow us on Twitter @BNYMellon.
All information source BNY Mellon as of June 30, 2013. 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.