Declining asset values pushed U.S. corporate pension funding levels down in August, said reports from BNY Mellon and Wilshire Consulting.
The funded status of the typical U.S. corporate pension plan declined 2.5 percentage points to 84.2% in August, said the BNY Mellon Institutional Scorecard.
Liabilities fell 0.9% over the month, the result of a nine-basis-point increase in the discount rate to 4.44%. However, market turmoil led to a 3.7% decline in assets for corporate DB plans in the month, driving the funded status lower.
“The second half of August served as a wake-up call to investors who had been lulled to sleep by several months of low volatility in the markets,” said Andrew D. Wozniak, head of fiduciary solutions of the investment strategy and solutions group within BNY Mellon Investment Management, in a news release. On Aug. 24, corporate DB plans' funded status dipped as low as 81.2%.
That being said, “corporate defined benefit sponsors were somewhat insulated from the full brunt of the volatility due to rising credit spreads, which led to a decline in liabilities,” Mr. Wozniak added. “The decline in asset values that hit typical public defined benefit plans, endowments and foundations was primarily due to poor equity performance across the globe. … Weakness in China is likely to emerge as the culprit behind the declines.”
In August, public DB plans, and endowments and foundations returned -4.07% and -3.67%, respectively, below their monthly return targets of 0.6% and 0.7%.
Emerging markets equity and international equity returned -9% and -7.6%, respectively, in the month. On the other end, global fixed income returned 0.1% and emerging markets debt, -1%.
Separately, Wilshire Consulting found the aggregate funding ratio for U.S. corporate pension plans declined 2.8 percentage points in August to 83.3%, the result of a 4.2% decline in asset values vs. a 0.9% decline in liability values.
Its 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.