The funded status of corporate pension plans continued to increase in July on the strength of equity markets, according to monthly funded status reports from Mercer and BNY Mellon Investment Management.
The aggregate funded status of S&P 1500 companies, as studied by Mercer, increased one percentage point in July to 89%. The S&P 500 was up 5.1% for the month, helping offset a slight decrease in the discount rate to 4.46% from 4.49%.
“Discount rates went backwards a little bit, not too bad, but equity movements took care of that,” said Jonathan Barry, a partner in Mercer's retirement business.
Similarly, the typical corporate pension plan's funded status increased 1.6 percentage points to 88.2% in July, according to the BNY Mellon Institutional Scorecard. The funded status was estimated at 89.5% in June, but all prior months have been updated to reflect the changing asset mix of corporate pension plans. The June funded status was re-calculated to 86.6%. Assets were up 2.7% for the month while liabilities increased 0.9% as the discount rate fell four basis points to 4.65%.
The aggregate deficit of S&P 1500 companies only decreased by $10 billion. It would have been more but General Motors Co. was reinstated into the S&P 1500, and has a lower funded status than the aggregate, Mr. Barry said in a telephone interview. He added there was no material change to funded status with the inclusion of GM.
Despite strong equity markets and poor bond returns, “there is a continued movement to fixed income from equity,” Mr. Barry said. “Some folks are leery of jumping into fixed income (now), but that is still the trend. There is just a brief pause now.”
Mr. Barry expects a surge in plans offering lump-sum payouts in 2014 as rising rates result in a lower expense for companies. The rate used to calculate lump sums is set only once a year, toward the end of the year. Mr. Barry added many plans are waiting for a higher rate.
Estimated aggregate assets of the S&P 1500 plans were $1.76 trillion as of July 31; estimated aggregate liabilities, $1.98 trillion, according to Mercer.
BNY Mellon revamped its monthly report to include public pension plans as well as foundations and endowments. A typical public plan led institutional investors in returns for July as assets increased 3.3%, resulting in about 270 basis points in excess return. Year to date, public plans are ahead of return targets by about 260 basis points, and 530 basis points over the last 12 months.
Typical foundation and endowment assets increased 3% in July, outpacing the annual target of 5% spending plus inflation. Foundations and endowments underperformed public plans, as alternatives underperformed public equity markets. Assets are up 12% in the 12 months, beating the 5.3% target.
