Pension Plans Get a Positive Push from the Market in October

Institutional investors of all types found relief from market headwinds.

The funded status of the typical U.S. corporate pension plan rose in October, increasing by 2.9 percentage points, to 84.7%, according to BNY Mellon Fiduciary Solutions’ Monthly Institutional Scorecard.

Corporate pensions are now up 2.4% year to date, after briefly dipping into negative territory in September. Public plans, and foundations and endowments both exceeded the Scorecard’s monthly return targets by 3.9% and 3.8%, respectively.  

“For the first time since midsummer, investors finally saw relief from market headwinds, as equities of all flavors had a strong month,” says Andrew D. Wozniak, head of BNY Mellon Fiduciary Solutions. “Corporate defined benefit plan sponsors felt the combined effects of both appreciating asset values and relatively stable liabilities, which led to funded status increases for the typical plan.”

For the typical U.S. corporate plan, Aa corporate discount rates fell by 3 basis points in October, to 4.35%, as investment grade spreads tightened. The decline in rates led to an increase in liabilities of 0.8%, while assets appreciated 4.2%.

Public defined benefit plans in October exceeded their return target by 3.9%, as assets increased by 4.5 percentage points, according to the October BNY Mellon Institutional Scorecard. Still, public plans are short on their year-to-date return target by 5.6%, and one-year return target by 6.9%.

“Investors are starting to come around on risk asset exposure, which definitely helped the equity markets this month,” Wozniak says. “High-yield credit and emerging market debt also saw gains—up 2.7% and 2.6%, respectively. Inflation has been virtually non-existent year to date, and is negative over the past 12 months.”

The October BNY Mellon Institutional Scorecard also noted that endowments and foundations surpassed their monthly spending plus inflation target by 3.8%. Despite the strong October, asset returns for the typical endowment and foundation are still down 53 basis points over the past year, which is behind the spending plus inflation target by 5.1%.