The funded status of U.S. corporate defined benefit plans fell in July because of rising liabilities, said reports from BNY Mellon and Wilshire Consulting.
The funded status of the typical U.S. corporate pension plan declined 1.1 percentage points to 86.7% in July, said the BNY Mellon Institutional Scorecard.
Liabilities rose 2.3% over the month, the result of a 14-basis-point drop in the discount rate to 4.36%, the first monthly drop in the discount rate since January but above the Dec. 31 level of 4%, noted Andrew D. Wozniak, head of fiduciary solutions of the investment strategy and solutions group within BNY Mellon Investment Management, in a telephone interview.
Assets rose 1.07% in the month for corporate DB plans, primarily the result of higher allocations to U.S. large-cap equities (29%) and long-duration bonds (26%), which returned 2.1% and 2.2%, respectively.
Other plan types that BNY Mellon monitors — public DB plans, and endowments and foundations — returned 0.56%, and -0.14%, respectively, in July.
Among the various asset classes, the best performers were real estate investment trusts, which returned 4% in July. At the other end was emerging markets equity, which returned -6.9%.
Separately, Wilshire Consulting found the aggregate funding ratio for U.S. corporate pension plans declined 70 basis points to 86.1% in July, the result of a 1.8% increase in liabilities vs. a 1% increase in asset values. July 2014’s funding level was also 86.1%.
July investment returns were positive for most asset classes; however, falling discount rates boosted plan liabilities, driving the funded status lower, said Ned McGuire, vice president and a member of the pension risk solutions group of Wilshire Consulting, the institutional investment consulting and outsourced CIO unit of Wilshire Associates, in a telephone interview.
Wilshire’s figures are the result of estimates of combined assets and liabilities of companies in the S&P 500 index that have defined benefit plans.
The estimated asset allocation is 32% domestic equity, 27% long-duration fixed income, 21% international equity, 18% core fixed income and 2% real estate.