According to the BNY Mellon Investment Strategy & Solutions Group (ISSG), the funded ratio is up 11.1 percentage points, year to date.
The funded status for June and all prior months have been updated to reflect the changing asset mix of corporate pension plans, said ISSG. These plans increasingly have been implementing liability-driven investing programs, which raise allocations to long maturity corporate bonds. The new asset mix also reflects an allocation to alternative asset classes.
Another change for July is the new name of the pension funding report, the “BNY Mellon Institutional Scorecard,” as the report now includes information about U.S. public plans, foundations and endowments.
“The new funded status numbers better explain the strategies being implemented,” said Jeffrey B. Saef, managing director, BNY Mellon Investment Management, and head of the ISSG. “The historical information also was revised to keep the comparisons relevant.”
Saef said the new information on public plans, foundations and endowments was added in response to requests from clients. “Our original report on corporate plans has been enthusiastically welcomed, and we added the new information as clients in those sectors began requesting it.”
For U.S. corporate pension plans, the July improvement was driven by a 2.7% increase in assets, which was propelled by strong U.S. equity returns. Liabilities for the typical plan increased 0.9% as the discount rate on Aa corporate bonds fell four basis points to 4.65%. Plan liabilities are calculated using the yields of long-term investment grade bonds. Lower yields on these bonds result in higher liabilities.
In the public sector, typical defined benefit portfolios outpaced their annualized 7.5% return target, as assets rose 3.3% over the month. For the month, the excess return for these plans was 2.7% as strong equity market returns were the main drivers for this positive performance. Year to date, plan assets are ahead of the return target by 2.6%.
Assets for typical U.S. endowments and foundations rose 3% in July, outpacing their annual target of 5% spending plus inflation.
“Trends were positive for all three categories, although public defined benefit plans did the best with their 3.3% gain in assets,” said Saef. “Endowments and foundations, with heavier allocation to alternatives, were slowed as alternatives underperformed the public equity markets.”
The BNY Mellon Investment Strategy and Solutions Group is a division of The Bank of New York Mellon.