US Corporate Pension Plans Reach 91% Funded Status

(October 3, 2013) — The funded status of typical US corporate pension plans rose by 2.9 percentage points to 91% in September, owing to rising equities in US and international markets, according to BNY Mellon Investment Strategy & Solutions Group (ISSG).

This is the first time their funded status has exceeded 90% since June 2011.

BNY Mellon also reported that US public pension plans, endowments, and foundations surpassed their expected returns in September.

The rise in equities may be due to increasing investor confidence, according to Mark Bogar, managing director at the Boston Company Asset Management, an equities investment boutique.

“We’ve seen more widespread optimism as economic conditions, especially in continental Europe and Japan, have bottomed and begun to improve,” Bogar said.

BNY Mellon found the climb in equities helped US corporate pension plans see a 3.1% increase in assets in September.

“Rising above a funded status level of 90% is important to many corporate pension plans as they are more likely to implement strategies that can lower a plan’s exposure to market volatility,” said Jeffrey Saef, managing director of BNY Mellon Investment Management and head of the ISSG. “The recent equity market returns are helping corporations outperform their liabilities.”

Liabilities were indeed lower in September, ISSG concluded. They fell 0.2%, helping the funded ratio for corporate pension plans increase 13.9 percentage points, year to date.

The data concluded that public defined benefit plans also experienced higher than expected returns last month. A typical fund reported a 3.4% excess return over its annualized 7.5% return target and was ahead of the return target by 3.8%.

ISSG also said public plans outperformed corporate plans, foundations, and endowments, particularly due to heavy allocations to private equity—an average of 10%.

The asset class performed predominantly well, gaining a 9% return in September.