The funded status of U.S. corporate pension plans dropped 4.2 percent in January to 91 percent, according to the BNY Mellon Investment Strategy & Solutions Group. The drop was fueled by falling interest rates and declining stocks.
Public defined benefit plans, endowments and foundations also lost ground in January as a result of the falling equity markets, BNY Mellon said.
“January’s decline was the largest monthly drop in funded status for U.S. corporate plans since May 2012,” said Andrew Wozniak, director of portfolio management and investment strategy for the Investment Strategy & Solutions Group.
Assets for corporate plans also fell 0.4 percent, while liabilities increased 4.2 percent. The increased liabilities are attributed to a 27 basis point decline in the Aa corporate discount rate to 4.66 percent, the report said. Plan liabilities are calculated using the yields of long-term investment grade bonds. Lower yields on these bonds result in higher liabilities.
On the public side, assets at the typical defined benefit plan fell nearly 1.4 percent in January, but year over year, public plans are ahead of their target by 1.5 percent.
Endowments and foundations lost 1.4 percent, with assets falling 0.9 percent. Investments in real estate and hedge funds helped endowments and foundations to mitigate their asset losses for the month, the report said.
Mercer, which tracks the funded status of the S&P 1500 pension plans, said they were 89 percent funded at the end of January, down from 95 percent funded at the end of 2013. Jonathan Barry, a partner in Mercer’s retirement business in Boston, pointed out that even though it was a rough start to the year for pensions, funded status and interest rates are still well above where they were last year.
At the end of January 2013, pension plans included in the Mercer survey averaged 77 percent funded.
The aggregate funding deficit of surveyed plans rose to $239 billion, an increase of $129 billion from December’s $103 billion deficit, Mercer found.