Liabilities out-dive assets in June
08 July 2015 New York
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The funded status of the typical US corporate pension plan increased 1.5 percentage points in June to 87.8 percent, as liabilities declined more rapidly than assets during the month, according to the BNY Mellon Investment Strategy and Solutions Group (ISSG).
The June BNY Mellon Institutional Scorecard is the first to reflect a realignment in the December 2014 funded status for the typical US corporate plan.
The realignment resulted from recent changes in mortality tables produced by the Society of Actuaries to estimate life expectancies. These longer life expectancy assumptions caused a 5 percentage-point reduction in the December 2014 funded status, which was then carried forward, ISSG said.
"We expect additional revisions as more companies adopt these changes in the mortality tables," commented Andrew Wozniak, head of fiduciary solutions at ISSG.
Public plans, endowments and foundations all missed their return targets in June due to falling asset values, ISSG said.
For the typical US corporate plan, assets in June fell 2.1 percent; while liabilities declined 3.8 percent as the Aa corporate discount rate rose 29 basis points to 4.49 percent, according to the June scorecard.
This was the fifth consecutive month for a rise in the discount rate and the third consecutive month in which most asset classes outperformed the liability at the typical corporate plan, according to ISSG.
Plan liabilities are calculated using the yields of long-term investment grade bonds. Higher yields on these bonds result in lower liabilities.
"The significant rise in the Aa corporate discount rate in June continued the momentum toward lower liabilities," said Wozniak.
"Discounting the impact of the new mortality tables, the funded status of typical corporate plans continues to improve because of the declining liabilities."
Public defined benefit plans in June missed their return target by 2.3 percent as assets declined 1.7 percent, according to the monthly report. Year-over-year, public plans are 6.8 percent below their annual return target, ISSG said.
For endowments and foundations, the real return in June was -2.0 percent as assets fell 1.3 percent, ISSG said. Year-over-year, endowments and foundations are behind their inflation plus spending target by 5.6 percent.
The June BNY Mellon Institutional Scorecard is the first to reflect a realignment in the December 2014 funded status for the typical US corporate plan.
The realignment resulted from recent changes in mortality tables produced by the Society of Actuaries to estimate life expectancies. These longer life expectancy assumptions caused a 5 percentage-point reduction in the December 2014 funded status, which was then carried forward, ISSG said.
"We expect additional revisions as more companies adopt these changes in the mortality tables," commented Andrew Wozniak, head of fiduciary solutions at ISSG.
Public plans, endowments and foundations all missed their return targets in June due to falling asset values, ISSG said.
For the typical US corporate plan, assets in June fell 2.1 percent; while liabilities declined 3.8 percent as the Aa corporate discount rate rose 29 basis points to 4.49 percent, according to the June scorecard.
This was the fifth consecutive month for a rise in the discount rate and the third consecutive month in which most asset classes outperformed the liability at the typical corporate plan, according to ISSG.
Plan liabilities are calculated using the yields of long-term investment grade bonds. Higher yields on these bonds result in lower liabilities.
"The significant rise in the Aa corporate discount rate in June continued the momentum toward lower liabilities," said Wozniak.
"Discounting the impact of the new mortality tables, the funded status of typical corporate plans continues to improve because of the declining liabilities."
Public defined benefit plans in June missed their return target by 2.3 percent as assets declined 1.7 percent, according to the monthly report. Year-over-year, public plans are 6.8 percent below their annual return target, ISSG said.
For endowments and foundations, the real return in June was -2.0 percent as assets fell 1.3 percent, ISSG said. Year-over-year, endowments and foundations are behind their inflation plus spending target by 5.6 percent.
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