Pensions See Increased Funded Status in April

Rising interest rates helped improve U.S. corporate pension plan funding.

The funded status of the typical U.S. corporate pension plan increased 2.9 percentage points in April to 90.1%, according to the BNY Mellon Investment Strategy and Solutions Group (ISSG).  

Public plans, endowments and foundations exceeded their targets for the month as asset values rose, the BNY Mellon Institutional Scorecard shows.

For the typical U.S. corporate plan, assets in April increased 0.7%; while liabilities fell 2.6% as the Aa corporate discount rate rose 20 basis points (bps) to 4.06%. Plan liabilities are calculated using the yields of long-term investment grade bonds. Higher yields on these bonds result in lower liabilities. 

The funded status is 0.5 percentage points lower than at this time last year and 2.8 percentage points higher than at the beginning of the year.

”Corporate plans are seeing the benefits of a slight rise in interest rates, which have increased for three consecutive months and are pushing down liabilities,” says Andrew D. Wozniak, head of fiduciary solutions, ISSG. “Emerging markets equity and private equity both had strong months, benefiting public plans, endowments and foundations.”

Public defined benefit (DB) plans in April exceeded their return target by 0.9% as assets returned 1.5%, according to the monthly report. Year over year, public plans remain below their return target by 1.8%.

For endowments and foundations, the real return in April was 1.2% as assets returned 1.5%.  Year over year, endowments and foundations are behind their inflation plus spending target by 1.1%.