The BNY Mellon Institutional Scorecard for March noted liabilities rose 0.7%, outpacing the 0.3% increase in assets during the month. Public defined benefit plans, endowments and foundations also lost ground as they failed to attain their targeted returns, ISSG said.
“Despite a high degree of volatility in March, the markets finished the month close to the same levels that they began,” says Andrew D. Wozniak, director, portfolio management and investment strategy, ISSG. “Asset returns were restrained, leading to slightly weaker funded status for corporate plans and preventing public plans, endowments and foundations from reaching their targeted returns.”
The increase in liabilities for corporate plans in March was due to a two-basis-point decline in the Aa corporate discount rate to 4.56%, the report says. Plan liabilities are calculated using the yields of long-term investment grade bonds. Lower yields on these bonds result in higher liabilities.
Year to date, the funded status of corporate plans is down 3.1 percentage points.
Wozniak added, “With the net decline in funded status through the first three months of 2014, plan sponsors were less motivated to reduce their exposure to market volatility. This was in marked contrast to 2013, when we saw a significant move toward reducing risk.”
On the public side, assets at the typical defined benefit plan in March rose 0.1%, producing excess return of -0.6%, missing the goal of positive 0.6% returns. Year over year, public plans are ahead of their target by 3.6%.
For endowments and foundations, the real return in March was -0.6%, missing the target for spending plus inflation. This underperformance was driven largely by their exposure to private equity, which declined 1.4% in March, the report said. Year over year, foundations and endowments are ahead of their target by 4.1%.