Whether they’re public or corporate, the funding status of pensions all dropped last month.
The reason? That hefty tumble in stocks on the last day of the month.
“Funded status performance in July was a tale of two markets, July 31st and the rest of the month,” said Andrew D. Wozniak, head of fiduciary solutions at BNY Mellon Investment Strategy and Solutions Group. “Unfortunately for plan sponsors, July 31st completely reversed what would have been a positive month for funded status, although losses at corporate plans were cushioned by their holdings in long-duration corporate bonds.”
BNY estimates that the typical U.S. corporate plan has allocated approximately 26 percent of its assets to such bonds.
According to the BNY Mellon Institutional Scorecard for July, the funded status of corporate pension plans in the U.S. fell to 90.8 percent. But nobody escaped, whether corporate or public plans, endowments or foundations; all retreated during the month.
Assets at the typical corporate plan dropped 1 percent and liabilities increased by 0.3 percent during the month. The July corporate plan increase in liabilities was due to the Aa corporate discount rate remaining at 4.32 percent.
Since plan liabilities are calculated using the yields of long-term investment grade bonds, lower or flat yields on these bonds result in higher liabilities.
Year-to-date, the news wasn’t cheery either, with the funded status of corporate plans down 4.4 percentage points.
The July report also said that public plans were down as well, with defined benefit plans missing targets by 2 percent thanks to a 1.4 percent drop in assets. Year over year, however, they fared better than corporate plans; BNY said that public plans exceeded their target by 3.7 percent.
Endowments and foundations saw real return in June of negative 2.4 percent, as assets declined 1.7 percent. Sharp declines in small-cap and private equities drove the negative trend.
Year-over-year, however, foundations and endowments are ahead of their target by 2.7 percent.
Also read: Pensions deliver $943 billion economic punch