The funded status of U.S. corporate pension plans rose between one and three percentage points in October on the back of rising asset values, said reports from BNY Mellon and Milliman.
The funded status of the typical U.S. corporate pension plan rose 2.9 percentage points to 84.7% in October, said the BNY Mellon Institutional Scorecard.
Assets returned 4.2% over the month, outweighing a 0.8% increase in liabilities. The liability increase was the result of a three-basis-point drop in the discount rate to 4.35%.
The other plan types that BNY Mellon monitors — public DB plans and endowments/foundations — returned 4.5% and 4.2%, respectively, in October, exceeding their monthly return targets of 0.6% and 0.4%.
“Every major asset class we track had a positive month in October,” said Andrew D. Wozniak, head of fiduciary solutions of the investment strategy and solutions group within BNY Mellon Investment Management, in a telephone interview.
Domestic large-cap equity led the way with an 8.4% return, followed by international equity at 7.4%; emerging markets equity, 7.1%; private equity 6.2%; real estate investment trusts, 6.2%; domestic small-cap equity, 5.6%; high-yield bonds, 2.7%; emerging markets debt, 2.6%; hedge funds, 1.6%; long government/credit, 0.4%; and global fixed income, 0.2%.
Public DB plans, the top-performing plan type, benefited from their higher allocations to U.S., international and private equity, and REITs.
Despite a strong October, the year-to-date story from a return perspective is less positive. Public DB plans, many of which have a 7.5% annual return target, have returned only 0.6% year-to-date.
“Unless (there's) a big move in fourth quarter, it's shaping up to be a disappointing year from a return perspective,” Mr. Wozniak said.
On a legislative note, Mr. Wozniak said the bipartisan budget act signed earlier this month could be both a “friend and a foe” for DB plan executives. The act allows companies to use higher discount rates when calculating liabilities, thereby lowering their pension contributions, but also raises Pension Benefit Guaranty Corp. premiums, with underfunded plans paying the most.
Separately, the Milliman 100 Pension Funding index showed the funded status of the 100 largest U.S. corporate pension plans rose 1.6 percentage points to 83.3% at the end of October. Assets rose 2.36% to $1.429 trillion, the result of a 2.75% investment return, the highest monthly return in 2015. Liabilities also rose by about 0.47% to $1.716 trillion, the result of a three-basis-point decrease in the discount rate to 4.16%.
If the pension funds achieve a median 7.3% asset return and the discount rate remains at 4.16%, the funding ratio would increase to 83.6% by the end of this year and 85.7% by the end of 2016, Milliman predicts.
