Liabilities outrun assets in pension plan race
03 April 2014 New York
Image: Shutterstock
The funded status of the typical US corporate pension plan declined 0.5 percentage points in March 2014 to 92.1 percent as liabilities increased faster than assets, according to the BNY Mellon Investment Strategy & Solutions Group (ISSG).
The BNY Mellon Institutional Scorecard for March noted liabilities rose 0.7 percent, outpacing the 0.3 percent increase in assets during the month.
Year to date, the funded status of corporate plans is down 3.1 percentage points, according to the scorecard.
Public defined benefit plans, endowments and foundations also lost ground as they failed to attain their targeted returns, ISSG said.
"Despite a high degree of volatility in March, the markets finished the month close to the same levels that they began," said Andrew Wozniak, director of portfolio management and investment strategy for ISSG.
"Asset returns were restrained, leading to slightly weaker funded status for corporate plans and preventing public plans, endowments and foundations from reaching their targeted returns."
Wozniak added that, with the net decline in funded status through the first three months of 2014, plan sponsors were less motivated to reduce their exposure to market volatility. This was in marked contrast to 2013, when there was a significant move toward reducing risk.
The increase in liabilities for corporate plans in March was due to a two-basis-point decline in the Aa corporate discount rate to 4.56 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 in March rose 0.1 percent, producing excess return of -0.6 percent, missing the goal of positive 0.6 percent returns, said ISSG. Year over year, public plans are ahead of their target by 3.6 percent.
The BNY Mellon Institutional Scorecard for March noted liabilities rose 0.7 percent, outpacing the 0.3 percent increase in assets during the month.
Year to date, the funded status of corporate plans is down 3.1 percentage points, according to the scorecard.
Public defined benefit plans, endowments and foundations also lost ground as they failed to attain their targeted returns, ISSG said.
"Despite a high degree of volatility in March, the markets finished the month close to the same levels that they began," said Andrew Wozniak, director of portfolio management and investment strategy for ISSG.
"Asset returns were restrained, leading to slightly weaker funded status for corporate plans and preventing public plans, endowments and foundations from reaching their targeted returns."
Wozniak added that, with the net decline in funded status through the first three months of 2014, plan sponsors were less motivated to reduce their exposure to market volatility. This was in marked contrast to 2013, when there was a significant move toward reducing risk.
The increase in liabilities for corporate plans in March was due to a two-basis-point decline in the Aa corporate discount rate to 4.56 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 in March rose 0.1 percent, producing excess return of -0.6 percent, missing the goal of positive 0.6 percent returns, said ISSG. Year over year, public plans are ahead of their target by 3.6 percent.
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