June 04, 2014

Funded Status of U.S. Corporate Pensions Falls to 90.6 Percent, According to BNY Mellon ISSG

Public Plans, Foundations and Endowments Exceed Targets

NEW YORK, June 4, 2014 /PRNewswire/ -- The funded status of the typical U.S. corporate pension plan fell 0.4 percentage points in May 2014 to 90.6 percent, a new 2014 low, as liabilities increased faster than assets for the third consecutive month, according to the BNY Mellon Investment Strategy & Solutions Group (ISSG).  

"Returns for corporate defined benefit portfolios were nearly six percent through May, which is near their annual targets of 7.5 percent to 8.0 percent," said Andrew D. Wozniak, head of fiduciary solutions, ISSG. "While asset returns have been good, they have been offset by declining interest rates, resulting in higher liabilities and lower funded status."

The BNY Mellon Institutional Scorecard for May noted liabilities increased 2.3 percent, outpacing the 1.9 percent increase in assets at the typical corporate plan during the month. 

Year to date, the funded status of corporate plans is down 4.6 percentage points, according to the scorecard.

Public defined benefit plans, endowments and foundations benefited from strong asset returns and exceeded their return targets, ISSG said.

"Reflecting lackluster U.S. economic growth, interest rates continued their downward slide," said Wozniak. "Many plan sponsors continue to maintain their equities allocations as they wait for the funded status of corporate plans to increase.  Should the funded status rise, we would expect to see more plans reduce their exposure to market risk."

The increase in liabilities for corporate plans in May was due to a 14-basis-point decline in the Aa corporate discount rate to 4.28 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 in May exceeded their target by 1.0 percent as assets led by real estate investment trusts (REITs) and emerging markets equities rose.  Year over year, public plans exceeded their target by 5.0 percent, ISSG said.

For endowments and foundations, the real return in May was 0.5 percent, exceeding the target for spending plus inflation, ISSG said.  This outperformance was driven largely by their exposure to REITs and U.S. equities, which account for 25 percent of the typical portfolios for endowments and foundations. Year over year, foundations and endowments are ahead of their target by 4.5 percent.

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 $1.6 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 March 31, 2014, BNY Mellon had $27.9 trillion in assets under custody and/or administration, and $1.6 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.

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Mike Dunn
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