The funded status of the typical U.S. corporate pension plan fell 0.4 percentage points in May 2014 to 90.6%, a new 2014 low.
The reason for the decline: liabilities increased faster than assets for the third consecutive month, according to the BNY Mellon Investment Strategy & Solutions Group (ISSG).
“Returns for corporate defined benefit portfolios were nearly 6% through May, which is near their annual targets of 7.5% to 8%,” says Andrew D. Wozniak, head of fiduciary solutions with ISSG. “While asset returns have been good, they have been offset by declining interest rates, resulting in higher liabilities and lower funded status.”
The BNY Mellon Institutional Scorecard for May noted liabilities increased 2.3%, outpacing the 1.9% increase in assets at the typical corporate plan during the month.
Year to date, the funded status of corporate plans is down 4.6 percentage points, according to the scorecard.
“Reflecting lacklustre U.S. economic growth, interest rates continued their downward slide,” Wozniak adds. “Many plan sponsors continue to maintain their equities allocations as they wait for the funded status of corporate plans to increase. Should the funded status rise, we would expect to see more plans reduce their exposure to market risk.”
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