The funded status for U.S. corporate defined benefit plans fell in April as liabilities rose faster than assets, said reports from BNY Mellon, Wilshire Consulting and Mercer.
The funded status of the typical U.S. corporate pension plan fell 30 basis points in April to 79.9%, said the BNY Mellon Institutional Scorecard. Liabilities rose by 1.6% during the month, driven by a nine-basis-point drop in the discount rate to 3.91%, and outpacing investment returns of 1.2%.
“Plan sponsors have seen strong asset growth over the past two months, but it has unfortunately been masked by a steady rise in liabilities,” said Andrew D. Wozniak, head of fiduciary solutions at BNY Mellon Investment Management, in a news release. “Early in the year, wider credit spreads were providing relief on the liability side by elevating corporate discount rates. This has reversed over the past two months with significant tightening of credit spreads resulting in a 30-basis-point drop in the discount rate. Periods like this demonstrate the importance of having the appropriate level of credit spread exposure within (liability-driven investment) strategies.”
Year-to-date through April 30, liabilities are up 9.1% and assets are up 4.4%. The funded status is down 3.6 percentage points from Dec. 31, according to BNY Mellon.
According to Mercer, the estimated aggregate funding ratio of pension plans sponsored by S&P 1500 companies fell one percentage point to 78% at the end of April.
Mercer also found a seven-basis-point drop in the discount rate to 3.73% outpaced gains by the S&P 500 index and MSCI EAFE index of 0.3% and 2.5%, respectively, in April.
The estimated aggregate value of pension fund assets of S&P 1500 companies totaled $1.82 trillion as of April 30, relatively unchanged from March 31, while estimated aggregate liabilities totaled $2.33 trillion, up 0.9% from March 31.
In another monthly report, Wilshire Consulting found the aggregate funding ratio for U.S. corporate pension plans declined 10 basis points over the month to 77.8% due to offsetting increases in liability and asset values of 0.8% each.
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 33% domestic equity, 25% long-duration fixed income, 23% international equity, 17% core fixed income and 2% real estate.