Pension Plans Took a Beating in September

Institutional investors of all types faced another difficult month. 

“Investors continued to face strong headwinds in the market, especially through the latter part of September,” says Andrew D. Wozniak, head of BNY Mellon Fiduciary Solutions. “Corporate defined benefit plan sponsors felt the combined effects of both declining asset values and increasing liabilities, which led to funded status declines for the typical plan.”   

The funded status of the typical U.S. corporate pension plan slipped again in September for the third consecutive month, dropping 2.4 percentage points, to 81.8%. The previous month’s low was 84.2%. Public plans, foundations and endowments also failed to meet targets due to declining asset values.   

For the typical U.S. corporate plan, funded status peaked at 85.5%, on September 16, before falling 3.7% in the second half of the month, driven by an overall 1.9% decline in assets since August.

Meanwhile, liabilities increased 1.1%, as the Aa Corporate discount rate fell by six basis points. Plan liabilities are calculated using the yields of long-term investment grade bonds. Lower yields on these bonds result in higher liabilities. 

Public defined benefit plans in September missed their return target by 2.8% as assets declined 2.2%, according to the September BNY Mellon Institutional Scorecard. Public plans have fallen short on year-to-date and one year return targets by 9.4% and 10.1%, respectively.

 “High-yield securities and equities continued to struggle, leading to the decline in asset values that hit typical public defined benefit plans, endowments and foundations,” Wozniak says. “Fixed income ex-high yield and REITs were the exception, performing well over the month as investors moved away from risk.”

The September BNY Mellon Institutional Scorecard also noted that endowments and foundations missed their spending plus inflation target by 2.8%. According to the monthly report, asset returns for the typical endowment and foundation fell 3.5% over the past year, which is behind the spending plus inflation target by 8.6%.