Yet, rising asset values benefited public plans, foundations and endowments.
The funded status of the typical U.S. corporate pension plan in August fell 0.7 percentage points to 90.1%, as liabilities rose 3.3%, outpacing the 2.6% return for assets, according to the BNY Mellon Institutional Scorecard, which is prepared monthly by ISSG. This funded status is now down 5.1% from the December 2013 high of 95.2%.
The higher liabilities for corporate plans in August resulted from the Aa corporate discount rate falling 21 basis points to 4.11% over the month. Plan liabilities are calculated using the yields of long-term investment grade bonds. Lower or flat yields on these bonds result in higher liabilities.
“Investors appeared to be torn between concerns about increased geopolitical tensions and optimism about the U.S. economy,” says Andrew D. Wozniak, head of fiduciary solutions, ISSG. “Geopolitical concerns resulted in more interest in longer term corporate credit and government bonds, sending interest rates lower. Optimism about the economy helped to push equities and other risk-based assets higher.”
Public defined benefit plans in August exceeded their target by 1.3% as assets increased 1.9%, according to the monthly report. Year over year, public plans exceeded their target by 7.6%.
For endowments and foundations, the real return in August was 1.1%, as assets returned 1.8%. Private equity and real estate investment trusts, which comprise 15% and 8%, respectively, of the asset portfolio, returned 2.5% over the month. Year over year, foundations and endowments are ahead of the inflation plus spending target by 6.3%, ISSG said.