July 07, 2016

Funded Status of U.S. Corporate Pensions Falls in June, to 78.1 Percent, According to BNY Mellon Fiduciary Solutions' Monthly Institutional Scorecard

Corporate plan sponsors see a 4.0 percent surge in liabilities in June, and more volatility as EU Referendum shakes global markets

NEW YORK, July 7, 2016 /PRNewswire/ -- According to the BNY Mellon Institutional Scorecard, which is available online here, the funded status of typical U.S. corporate defined benefit (DB) plans fell by 2.1 percent in June, to 78.1 percent. The slide represents the lowest month-end funded status yet for U.S. corporate DB plans in 2016. Asset growth of 1.5 percent was not enough for plan sponsors to outpace rising liabilities—which increased by 4.0 percent in June, after the EU Referendum vote shook global markets.

Over the course of the month, corporate discount rates declined by 25 basis-points, and yielded 3.66 percent, which did little to curb the surge in liabilities. The U.S. 10-year and 30-year Treasuries also continued to trade at or near all-time lows with respect to yields. Year-to-date, for typical U.S. corporate DB plans, assets are up 6.5 percent, compared to a 13.85 percent increase in liabilities for plan sponsors. On a 12-month basis, liabilities have outpaced asset growth by over four-fold, increasing 16.96 percent versus 4.07 percent, respectively.

According to BNY Mellon estimates, the S&P 500 pension deficit is now estimated to have increased by $61 billion in June, to $495 billion.

On the public DB side, the typical plan fell short of its monthly return target of excess returns over a 7.5 percent annual return by 0.3 percent, even as investors saw an average return of 0.3 percent on assets. Typical public DB plans are now down on their year-to-date goal by four basis points, and remain 7.4 percent behind their 12 month target.

Endowments & foundations also missed their monthly target of real return in excess of inflation and 5 percent spending by 0.3 percent in June. Endowments & foundations are still up 0.8 percent against their year-to-date target, but remain 6.6 percent behind their 12 month return target, despite asset returns of 0.4 percent in June.

Of the asset classes the scorecard tracks, Long Duration Fixed Income and REITS were among the best performers in June, returning 4.9 percent and 4.8 percent respectively. Emerging Market Equities also had a good month, returning 4.0 percent to investors, despite International Developed Equities falling by 1.5 percent. Both U.S. Large and Small Cap equities remained mostly flat, returning 0.3 percent and (0.1) percent respectively.

"The U.K.'s decision to leave the European Union certainly brought some volatility to the market," said Andrew Wozniak, head of BNY Mellon Fiduciary Solutions. "Global equity markets have rebounded nicely since the initial sell-off following the vote, but the same cannot be said about fixed income markets, as yields have remained quite low. We're seeing that sponsors who have employed liability driven investing strategies continue to be insulated from these types of market shock events."

Notes to Editors:
BNY Mellon Fiduciary Solutions is a division of The Bank of New York Mellon.

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, 2016, BNY Mellon had $29.1 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 http://www.bnymellon.com/. Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.

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