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Funded status of US corporate pensions rises to 92.6 per cent

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The funded status of the typical US corporate pension plan improved 1.7 percentage points in February 2014 to 92.6 per cent as most asset classes gained during the month, according to the BNY Mellon Investment Strategy & Solutions Group (ISSG).   

The BNY Mellon Institutional Scorecard for February noted the gains in asset values outpaced the rise in liabilities, which resulted from falling interest rates.
 
Year to date, the funded status of the corporate plans is down 2.6 percentage points, according to the scorecard.
 
"The financial status of pensions, endowments and foundations in February recovered a significant amount of the ground they lost in January as most asset classes recovered," says Andrew D Wozniak, director, portfolio management and investment strategy, ISSG. "Concerns about global growth fundamentals that had surfaced in January appeared to abate somewhat in February.  Commodities were the best performing asset class in February, rising 6.24 per cent."
 
For US corporate plans, assets increased 3.3 per cent and liabilities increased 1.4 per cent during the month.  The increase in liabilities in February was due to an eight-basis-point decline in the Aa corporate discount rate to 4.58 per cent, 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.
 
On the public side, assets at the typical defined benefit plan in February rose 3.5 per cent, producing excess return of 2.9 per cent above the monthly goal of positive 0.6 per cent returns.  Year over year, public plans are ahead of their target by 4.9 per cent.
 
For endowments and foundations, the real return was 3.0 per cent, which exceeded the target for spending plus inflation.  Investments in commodities and real estate helped endowments and foundations to strong performance in February.
 
Mellon Capital Management, BNY Mellon's San Francisco-based multi-asset manager, attributes the spike in commodities to unusual weather conditions in the US and abroad, setting off concerns about potential grain shortages.
 
"We do not view the rise in commodities as a signal of future excessive inflation," says Suzanne Ly, vice president, asset allocation portfolio management, Mellon Capital. "The strength in the commodity markets should abate as the weather normalises and inflationary pressures remain low."
 
Wozniak says plan sponsors continue to show interest in strategies to hedge their portfolios against market volatility. 
 
"Many sponsors view the continuing financial strength of corporate pensions as an opportunity to lower the risks they face," he says.

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