For Corporate Pensions, February Marks Fourth Straight Month of Funding Decline

The collective funding status of corporate DB plans fell 1.6 percent in February, according to the BNY Mellon Institutional Scorecard.

That marks the fourth consecutive month that corporate DB funding has declined; the typical plan is now 78.7 percent funded, according to the scorecard.

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Interestingly, the 2.3 percent increase in liabilities that corporate DB plan sponsors saw in February was higher than the returns of most asset classes over the course of the month. Of the asset classes the scorecard tracks, Global Fixed-Income and Long Duration Fixed-Income assets performed the best, with both returning 2.2 percent. Emerging Market Debt, REITs and High Yield Bonds were also slightly positive, with 1.3, 0.9 and 0.6 percent returns, respectively. International equity was the worst performer, falling by 1.1 percent in February.

“For over a decade, most plan sponsors and investment managers have been calling for a rise in interest rates. 2016 is shaping up to be another humbling year in that regard,” said Andrew Wozniak, head of BNY Mellon Fiduciary Solutions. “On the funding front, a number of our clients are exploring the possibility of making voluntary contributions to mitigate the pain associated with rising variable Pension Benefit Guaranty Corp. premiums and lower funding ratios.”

In February, public DB plans and endowments & foundations also missed their return targets—though only by a small margin. Public plans missed their target of 7.5% annual returns by 60 basis-points; and endowments & foundations missed their target of 5% returns over inflation and spending by 50 basis-points. Both types of investors are heavily weighted toward alternative assets, which account 27 percent of typical public DB portfolios, and 57 percent of endowments & foundation portfolios.

View the scorecard here.

Photo by Sarath Kuchi via Flickr CC License