August Rough Month For Corporate, Public Pensions

Market volatility made August a rough month for pension plans in the private and public sector, according to a BNY Mellon report.

The funded status of the average corporate plan fell 2.4 percent last month, according to the report. Meanwhile, public sector plans lost 4.1 percent of their value.

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According to BNY Mellon Fiduciary Solutions, the funded status of the typical U.S. corporate pension plan fell 2.5 percentage points, thanks to asset values that fell faster than liabilities, benefiting from widening credit spreads.

In fact, funded status dipped as low as 81.2 percent on August 24, according to the firm, but it has since recovered some of its lost ground.

Because asset values were down, public plans, endowments, and foundations failed to meet their targets. Public defined benefit plans missed August return targets by 4.7 percent, because assets fell by 4.1 percent, according to the August BNY Mellon Institutional Scorecard.

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“The second half of August served as a wakeup call to investors who had been lulled to sleep by several months of low volatility in the markets,” said Andrew D. Wozniak, head of BNY Mellon Fiduciary Solutions, in a statement. “Corporate defined benefit plan sponsors were somewhat insulated from the full brunt of the volatility due to rising credit spreads, which led to a decline in liabilities.”

Wozniak added, “The decline in asset values that hit typical public defined benefit plans, endowments and foundations was primarily due to poor equity performance across the globe. Weakness in China is likely to emerge as the culprit behind the declines.”

Read the BNY press release here.

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