By Kevin Olsen, Crain News Service
NEW YORK (Feb. 5, 2014) — The funded status of corporate defined benefit plans experienced a significant drop in January, giving back some of the large gains made in 2013, according to reports from Mercer and BNY Mellon Investment Management.
Funded status was hurt both by market performance and a drop in the discount rate. Mercer reported the discount rate decreased by 35 basis points to 4.34 percent, while BNY Mellon said it fell 27 basis points to 4.66 percent. The discount rate was up about a full percentage point in 2013.
"We're almost at what I call a funded status correction," said Andrew Wozniak, director, portfolio management and investment strategy, at BNY Mellon. He pointed to disappointing earnings statements, a slowdown in China manufacturing and the Federal Reserve continuing its tapering as reasons for the down month. "The funded status dropped about four points…and wiped out the (fourth-quarter) gains."
Mr. Wozniak said corporate pension funds actually fared better than typical public plans or foundations and endowments in January because of an unexpected bond rally. He added that a typical corporate plan has a 26 percent allocation to long-duration bonds, which were up 4 percent for the month. Corporate plans saw assets fall by 0.4 percent, while liabilities increased 4.2 percent. A typical public pension fund was down 1.4 percent for the month, and foundations and endowments, down 0.9 percent.
"Put your seat belt on because it's going to be a wild ride this year," Mr. Wozniak said in a telephone interview, pointing out the Chicago Board Options Exchange Market Volatility index, known as the VIX, spiked last month.
The overall pension fund deficit of S&P 1500 plans more than doubled in January to $232 billion from $103 billion. Total assets dropped to about $1.83 trillion from $1.85 trillion at the end of 2013.
This report appeared in Crain's Pensions & Investments magazine, a New York-based sister publication of Tire Business.