The typical U.S. corporate pension plan's funding status declined by 1.1 percentage points to 91 percent in April as liabilities increased faster than assets. This is the second consecutive month of decreased funding status in corporate plans, according to data from BNY Mellon's Investment Strategy & Solutions Group.
Liabilities increased 2.1 percent while assets only increased at 0.9 percent. According to BNY Mellon, corporate pension plans funding status is down 4.2 percent year-to-date.
Public defined benefit pension plans met their target returns in April, while endowments and foundations posted negative returns.
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"Significant declines by small cap stocks and private equity were the primary reason that corporate plan returns did not keep pace with the liabilities," said Andrew Wozniak in a press release. "With the funded status of corporate plans down from their high of 95.2 percent in December of 2013, many plan sponsors continue to maintain high allocations to equities as they wait for a better environment to reduce their exposure to market risk," explained Wozniak, head of fiduciary solutions, Investment Strategy & Solutions Group.
Markets have seen a consistent rotation from growth stocks into value stocks. Small and mid-cap companies tend to be growth stocks, which often lead performance when markets are on the way up, and lag after indices hit their peak as investors seek safety in value equities, or established, larger companies whose stock is less volatile.
Corporate bonds suffered a 13-basis point decline in April. Plan liabilities are based off of the health of corporate long-term investment grade bonds. When those bonds experience lower yield, pension plans suffer higher liabilities.
Public defined benefit plans have been performing better year over year, as investments in large cap equities and real estate investment trusts secured gains of 0.6 percent in April. Public plans are ahead of their target by 1.8 percent for the year, according to the company's data.
Endowments and foundations suffered a negative real return in April, largely due to their exposure in private equity, which declined 2.3 percent, the second consecutive month of negative performance in that sector. Endowments and foundations are ahead of their year-over-year target by 2.2 percent.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
