U.S. corporate defined benefit plans’ funded status tumbled again in February, falling by 1.3% to 78.7%, according to the BNY Mellon Institutional Scorecard, released Thursday.
This was the fourth consecutive month in which the funded status of the typical U.S. corporate pension plans decreased, the report said.
Last month, the funded status dropped by 3.8%.
Corporate pension assets returned 0.6% in February, while liabilities rose by 2.3% as discount rates fell by 14 basis points, to 4.2%.
Assets are now down 1.8% for the year and down 6.2% since February 2015. Liabilities, though up by 4.2% year to date, are down 1.6% over the past 12 months.
BNY Mellon noted in a statement that February’s increase in liabilities exceeded the returns of most asset classes during the month. Global fixed income and long duration fixed income assets did the best, both returning 2.2%.
Emerging market debt returned 1.3%, REITs 0.9% and high yield bonds 0.6%. February’s worst performer was international equity, which fell by 1.1%.
BNY Mellon estimated that the S&P pension deficit had swelled to $441 billion, an increase of $37 billion. This was largely due to rising liabilities, some $2.1 trillion, versus existing assets, estimated at $1.6 trillion.
“For over a decade, most plan sponsors and investment managers have been calling for a rise in interest rates,” Andrew Wozniak, head of BNY Mellon Fiduciary Solutions, said in the statement. “2016 is shaping up to be another humbling year in that regard.
“On the funding front, a number of our clients are exploring the possibility of making voluntary contributions to mitigate the pain associated with rising variable Pension Benefit Guaranty Corp. premiums and lower funding ratios.”
In February, public defined benefit plans and endowments and foundations also missed their return targets for the fourth consecutive month.
Public plans fell 60 basis points short of their target of 7.5% annual returns, and endowments and foundations missed their target of 5% returns over inflation and spending by 50 basis points.
Both investors were heavily weighted toward alternative assets, with endowments and foundations allocating 57% of their portfolios to alternatives, and public DBs 27%.
Hedge fund returns were flat in February, and private equity returned 0.3%, according to the scorecard.
BNY Mellon said typical public DB plans’ assets have fallen by 7.9% over the past 12 months. The plans are now 4.9% behind their year-to-date return target, and 15.4% behind one-year return target.
Foundations and endowments are in the same boat: 4.4% short of their year-to-date target, and 14.6% behind their 12-month return target.