Administration December 3, 2014

Pension Funded Status Rebounds from October

BNY Mellon reports the funded status of the typical U.S. corporate pension plan increased to 89.9% in November.

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The funded status of the typical U.S. corporate pension plan increased 0.4 percentage points to 89.9% in November as assets increased faster than liabilities, according to the BNY Mellon Investment Strategy and Solutions Group (ISSG).

For the typical corporate plan in November, assets increased 1.5%, outpacing the 1.1% increase in liabilities, according to the BNY Mellon Institutional Scorecard. The funded status for the typical corporate plan is now down 5.3% from the December 2013 high of 95.2%.

In addition, public defined benefit plans, endowments and foundations beat their targets in November on the strength of rising asset values.

ISSG attributed the higher assets for U.S. corporate and public plans in November to the improvement in U.S. large cap and international developed market equities, while endowments and foundations benefited from the performance of private equity and real estate investment trusts.

The higher liabilities for corporate plans in November resulted from the Aa corporate discount rate falling six basis points to 4.14% over the month. Plan liabilities are calculated using the yields of long-term investment grade bonds; lower yields on these bonds result in higher liabilities.

“The rebound in funded status in November reversed the damage done in October,” says Andrew D. Wozniak, head of fiduciary solutions, ISSG. “However, plan sponsors are bracing for changes in the way regulators view mortality assumptions used to value liabilities. These changes are likely to drive down the funded status for sponsors who will report earnings as of December 31, 2014.”

Public defined benefit plans in November beat their targets by 0.7% as assets rose 1.3%, according to the monthly report. Year over year, public plans have underperformed their return target by 0.7%.

For endowments and foundations, the real return in November was 0.6%, as assets returned 1.0%. Year over year, endowments and foundations are behind their inflation plus spending target by 0.5%.