Rising equity and bond prices as well as a higher discount rate conspired to put corporate pension funds in their best position since the market crash in 2008.
Bank of New York Mellon’s Investment Strategy & Solutions Group said the typical plan ended the month with 93.9 percent of its liabilities funded, up from 91.8 percent in October.
“Corporate bond yields have resumed their upward march, following a pause in October,” said Jeffrey B. Saef, managing director of BNY Mellon, and head of the solutions group. “The corporate discount rate is now 109 basis points higher than in November of 2012 and the funded ratio for corporate pension plans is up 16.8 percentage points since the beginning of the year. As a result we see more plan sponsors reducing their exposure to market volatility.”
The typical pension fund gained assets (up 0.4 percent) and saw future liabilities fall (down 1.8 percent).
Public pension systems, the bank said, did not fare as well. The typical public plan’s returns did not surpass the annualized 7.5 percent rate of return needed to reach its actuarial goal. Public pension funds have been under increasing pressure as new actuarial methods have increased future unfunded liabilities. Municipal bankruptcies in places like Detroit and California have left benefits payments in doubt.
On the private side, many companies are buying out their pension plans. Recent data from Mercer showed that the cost of keeping a plan or buying it out was virtually the same.