The BNY Mellon Institutional Scorecard for July notes assets for the typical corporate plan fell 1% during the month while liabilities rose 0.3%, leading to the net decline in funded status. The slight increase in liabilities for corporate plans in July was mainly due to the Aa corporate discount rate remaining at 4.32%. As ISSG researchers explain, pension plan liabilities are calculated using the yields of long-term investment grade bonds. Lower or flat yields on these bonds result in higher liabilities.
Andrew D. Wozniak, head of fiduciary solutions at ISSG, estimates that the typical U.S. corporate plan is allocating around 26% of assets to long-duration bonds as liability driven investing (LDI) programs are instituted (see “Implementing a Liability Driven Investing Strategy”).
“Funded status performance in July was a tale of two markets, July 31 and the rest of the month,” he said. Year to date, the funded status of corporate plans is down 4.4%, according to the ISSG scorecard.
Public defined benefit plans in July missed their return target by 2.0% as assets fell 1.4%. Year over year, public plans have exceeded their target by 3.7%, ISSG says.
For endowments and foundations, the real return in June was negative 2.4%, as assets declined 1.7%. Sharp declines in small cap and private equities drove the poor monthly performance, ISSG says.
The BNY Mellon Investment Strategy and Solutions Group is a division of The Bank of New York Mellon.
— Matthew Miseli