Corporate plans just over 70% funded, reports say

The typical corporate defined benefit plan ended the second quarter at slightly more than 70% funded, according to reports Thursday from BNY Mellon Asset Management and Legal & General Investment Management America.

The funded status increased to 71.6% at the end of June in BNY Mellon's universe, up 1.8 percentage points from the end of May, which was the lowest funded status since the firm began tracking that data in December 2007. U.S. equity markets increased 3.9% in June, while developed international equity markets increased 7%. The market rebound from a sluggish April and May resulted in a 2.7% gain in assets, while liabilities rose only 0.1%. The discount rate was unchanged at 3.98%.

In Legal & General's quarterly report, a typical corporate plan's funded status dropped to the low-70% range for the three months ended June 30, from an 80% to 85% range at the end of the first quarter. Global equities were down 5% for the quarter following a 12% increase in the first quarter, resulting in a 2% decrease in value for a traditional 60% equity/40% bond strategy. The discount rate also fell to 4.4% for the quarter from 4.8%.

“The doom and gloom in Europe put a damper on equity markets,” said Andrew Carter, pension solutions strategist at LGIMA, in a telephone interview.

Mr. Carter said plan executives continue to show increased interest in derisking strategies and long-term strategic plans, and some have started putting plans into action. While the low-interest-rate environment makes it difficult to implement liability-driven investing strategies at this point, plans are looking at derisking glidepaths, strategies to help hedge interest rates and options-based strategies, he added.

“Plans are thinking outside the box more,” Mr. Carter said. “People are trying to be more clever.”