The funded status for U.S. corporate pension plans fell between 20 and 100 basis points in November due to negative returns for most asset classes.
The funded status of the typical U.S. corporate pension plan declined 20 basis points to 84.5%, said the BNY Mellon Institutional Scorecard. Assets declined -0.5% and liabilities fell 0.2%. The liability decrease was the result of a four-basis-point increase in the discount rate to 4.39%.
The Milliman 100 Pension Funding index also found a 20-basis-point decrease, to 83.3%, in the funded status of the 100 largest U.S. corporate plans. Assets declined 0.21% to $1.429 trillion, the result of a meager 0.16% investment return. Liabilities were unchanged at $1.716 trillion, while the discount rate was unchanged from October, at 4.16%.
According to Mercer, the estimated aggregate funding ratio of pension plans sponsored by S&P 1500 companies declined 100 basis points to 82% in November. The typical discount rate measured by the Mercer yield curve increased four basis points to at 4.18%.
Wilshire Consulting found the aggregate funding ratio for U.S. corporate pension plans declined 60 basis points over the month to 83.5% due to a 0.8% decrease in asset values and 0.1% decrease in liabilities.
Negative returns for non-U.S. equities, and core and high-yield bonds drove the decline, said a report from Wilshire Consulting, the institutional investment consulting and outsourced CIO unit of Wilshire Associates. 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 was 32% domestic equity, 27% long-duration fixed income, 21% international equity, 18% core fixed income and 2% real estate.
The two other plan types that BNY Mellon monitors — public defined benefit plans and endowments/foundations — returned -0.6% and -1%, respectively, falling short of their monthly return targets of 0.6% and 0.38%. Endowments and foundations struggled in part from an 11% allocation to commodities, which was down almost 8% for the month, said Michael Rausch, head of investment strategy in the fiduciary solutions group within BNY Mellon Investment Management. Public DB plans were short of their year-to-date Nov. 30 target by 6.88 percentage points, and endowments and foundations were short of their year-to-date target by 6.06 percentage points.
The highest-returning asset class was domestic equity. Domestic small-cap equity returned 3.3%; domestic large-cap equity, 0.3% and private equity, 1.3%. At the other end, hedge funds returned -0.4%, long government/ credit, -0.6%; emerging markets debt, -0.7%; real estate investment trusts, -1.5%; global fixed income, -1.7%; international equity, -2.1%; high-yield fixed income, -2.2%; and emerging markets equity, -3.9%.
In its report, Milliman predicted that 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 85.6% by the end of this year and 88% by the end of 2016.
“November was another middling month for these pensions, and with the calendar flipping soon the book is nearly written on 2015,” said John Ehrhardt, principal, consulting actuary and co-author of the report in a news release accompanying the report. “But with the Fed potentially raising interest rates at the end of the calendar year, it could be an exciting finish.”
Despite November's dip, the funded status is still above the 81.5% of year-end 2014, primarily due to a 32-basis-point increase in the discount rate, said Zorast Wadia, principal, consulting actuary and co-author of the report in a telephone interview.
“November was able to hold most of the improvements in funded status from October, giving hope that 2015 will end up with a positive improvement in funded status, when only a few months ago it looked like 2015 could be a damaging year for pension plans,” said Jim Ritchie, a principal in Mercer's retirement practice, in a news release.
The funded status was 79% at the end of 2014, according to Mercer. n