Corporate Funded Status News Is Mixed

Private pensions gained last month while flat markets depressed the growth of public-sector plans.

The funded status of the typical U.S. corporate pension plan continued its rise, increasing 1.5 percentage points in May to 91.6%, says the BNY Mellon Investment Strategy and Solutions Group (ISSG), on top of April’s 2.9% growth. Public plans, foundations and endowments, however, missed their targets for the month as flat markets failed to raise the value of their assets.

The corporate plans benefited from lower liabilities, as discount rates rose for the fourth straight month, the BNY Mellon Institutional Scorecard shows.

For the typical U.S. corporate plan, assets fell 0.2% in May; while liabilities declined 1.9% as the Aa corporate discount rate rose 15 basis points (bps) to 4.20%. Plan liabilities are calculated using the yields of long-term investment-grade bonds. Higher yields on these bonds can reduce liabilities. 

The funded status is at its highest level since reaching 92.0%11 months ago and is 4.3 percentage points higher than at the start of this year.

“The rising rates have been the biggest driver in funded status in 2015,” says Andrew D. Wozniak, head of fiduciary solutions, ISSG. “While asset returns have only been approximately 3% this year, the funded status has risen more than 4 percentage points because liabilities have fallen.”

The monthly report also notes that public defined benefit (DB) plans missed their return target by 0.7% in May, as assets declined 0.1%. Year over year, public plans are 3.5% below their annual return target, ISSG says.

For endowments and foundations, the real return last month was -0.6%, as assets were flat, ISSG says. Year over year, endowments and foundations are behind their inflation-plus-spending target by 2.2%, ISSG says.