Fri, 04/07/2014 - 06:18
The funded status of the typical US corporate pension plan increased 1.4 percentage points in June 2014 to 92.0 per cent, driven by rising asset values, according to BNY Mellon.
"Corporate plans also benefited from a slight rise in interest rates, which reduced liabilities," says Andrew D Wozniak, head of fiduciary solutions at the BNY Mellon Investment Strategy and Solutions Group (ISSG). "June ended a string of three consecutive months of falling rates, which had been driving liabilities higher."
The BNY Mellon Institutional Scorecard for June notes assets at the typical corporate plan rose 1.4 per cent and liabilities decreased 0.2 per cent during the month.
Year to date, the funded status of corporate plans is down 3.2 percentage points, according to the scorecard.
Public defined benefit plans, endowments and foundations also benefited from strong asset returns and exceeded their return targets, ISSG says.
"Equities have continued rallying since April as economic data appears to indicate strengthening global growth," says Wozniak. "If the funded status continues to rise, we expect more plans to implement strategies that better insulate them from future market volatility."
The decrease in liabilities for corporate plans in June was due to a 4-basis-point increase in the Aa corporate discount rate to 4.32 per cent. Plan liabilities are calculated using the yields of long-term investment grade bonds. Higher yields on these bonds result in lower liabilities.
On the public side, defined benefit plans in June exceeded their target by 1.0 per cent as assets led by small cap equities and private equity rose. Year over year, public plans exceeded their target by 9.0 percent, ISSG says.
For endowments and foundations, the real return in June was 1.0 per cent, exceeding the target for spending plus inflation. This outperformance was driven largely by their exposure to private equity, which accounts for approximately 15 per cent of the typical portfolios for endowments and foundations. Year over year, foundations and endowments are ahead of their target by 8.2 per cent.
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