Funded Status of U.S. Corporate Pensions Falls in April, to 79.9 Percent, According to BNY Mellon Fiduciary Solutions' Monthly Institutional Scorecard
OREANDA-NEWS. According to the BNY Mellon Institutional Scorecard, the funded status of typical U.S. corporate defined benefit (DB) plans fell by 0.3 percent in April, to 79.9 percent. After a slight increase in March, the funded status of Corporate DB plans has now fallen five out of the last six months, since closing the month of October, 2015 at 84.7 percent.
Over the course of April, liabilities grew by 1.6 percent, which outpaced a modest 1.2 percent return in assets. Corporate discount rates fell by 9 basis points in April, to 3.91 percent—which led to much of the 1.6 percent gain in liabilities. On the year, assets are now up 4.4 percent, but remain behind liabilities, which are up 9.1 percent.
According to BNY Mellon estimates, the S&P 500 pension deficit is estimated to have increased by $13 billion in April, to $436 billion.
"Plan sponsors have seen strong asset growth over the past two months, but it has unfortunately been masked by a steady rise in liabilities," said Andrew Wozniak, head of BNY Mellon Fiduciary Solutions. "Early in the year, wider credit spreads were providing relief on the liability side by elevating corporate discount rates. This has reversed over the past two months with significant tightening of credit spreads resulting in a 30 basis point drop in the discount rate. Periods like this demonstrate the importance of having the appropriate level of credit spread exposure within LDI strategies."
In April, public DB plans and endowments & foundations both beat their respective return targets.
Public DB Plans' target of excess returns over a 7.5 percent annual return was exceeded by 0.62 percent in April. Public DB plans are now up 0.56 percent against their goal year-to-date, but remain 9.74 percent behind their 12 month target.
Endowments & foundations' goal of real returns in excess of inflation and 5 percent spending was exceeded by 1.16 percent in April. They are now up 1.62 percent against their target year-to-date, but 8.42 percent behind their return target over the last 12 months.
Of the asset classes the scorecard tracks, High Yield was among the best performing asset classes in April, returning 3.9 percent to investors. The High Yield market continues to benefit from rising oil prices, and the relief they have provided to the energy sector. Long Duration Fixed Income and Emerging Market Equities continue to set the pace among asset class returns year-to-date though—each supporting returns of 8.6 percent and 6.3 percent, respectively. REITS were one of the only asset classes to decline in April, down 50 basis points. Still REITs are up 3.9 percent year-to-date.
BNY Mellon Fiduciary Solutions is a division of The Bank of New York Mellon.
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of March 31, 2016, BNY Mellon had $29.1 trillion in assets under custody and/or administration, and $1.6 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK).
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