Funded Status of Corporate Pensions Falls To Lowest Level In 13 Months

Investment Companies sheet

Pension360 focuses on public pensions, but the general landscape of pensions in the U.S. is important, as well.

On that note, an interesting piece of news surfaced Thursday: the funded status of U.S. corporate pensions dropped this month to the lowest level since August 2013. Plans’ funding levels fell from 90.1 percent to 89.9 percent. From MarketWatch:

The funded status of the typical U.S. corporate pension plan in September fell 0.2 percentage points, despite liabilities falling 2.6 percent, according to the BNY Mellon Institutional Scorecard. Assets for the corporate plans fell 2.7 percent, outpacing the fall in liabilities, ISSG said.

This funded status is now down 5.3 percent from the December 2013 high of 95.2 percent, according to the scorecard.

The lower liabilities for corporate plans in September resulted from the Aa corporate discount rate rising 20 basis points to 4.31 percent over the month. Plan liabilities are calculated using the yields of long-term investment grade bonds. Higher yields on these bonds result in lower liabilities.

“After benefiting from the first monthly decline in liabilities of more than one percent since November 2013, pension plans still failed to improve their funded status,” said Andrew D. Wozniak, head of fiduciary solutions, ISSG. “Although U.S. large cap equities outperformed the liabilities over the month, they were the only major equity class to do so. A sustained divergence between U.S. large cap equity returns and other public equity classes could continue the downward trend in funded status.”

ISSG also noted that public defined benefit plans missed their return targets in September by 3.5 percent, but have hit their return targets for the last twelve months, collectively.

 

Photo by Andreas Poike via Flickr CC License