The funded status of the typical U.S. corporate defined benefit plan fell by 0.3% in April to 79.9%, notwithstanding asset returns of 1.2%, BNY Mellon reported Thursday.

Corporate DB plans’ funded status has now fallen five out of the last six months, since closing at 84.7% in October.

Liabilities rose by 1.6% in April, as corporate discount rates fell by nine basis points to 3.9%.

BNY Mellon estimated that the S&P 500 pension deficit grew by $13 billion in April, to $436 billion. Liabilities stood at $2.2 trillion against assets of $1.7 trillion.

Year to date, assets are up 4.4%, while liabilities are up 9.1%.

Only four asset classes outpaced the 1.5% typical liability in April: high yield, up 3.9%; international equity, up 2.6%; emerging debt, up 1.8%; and small cap equity, up 1.6%. Hedge funds were flat.

“Plan sponsors have seen strong asset growth over the past two months, but it has unfortunately been masked by a steady rise in liabilities,” Andrew Wozniak, head of BNY Mellon Fiduciary Solutions, said in a statement.

Wozniak said wider credit spreads early in 2016 provided relief on the liability side by elevating corporate discount rates, but this reversed over the past two months. Significant tightening of credit spreads resulted in a 30 basis point drop in the discount rate. 

“Periods like this demonstrate the importance of having the appropriate level of credit spread exposure within LDI strategies,” he said.

Ahead of the Game

Public DB plans and endowments and foundations enjoyed better results in April.

The typical public DB plan exceeded its 7.5% annual return target by 0.6%, thanks to asset returns of 1.2%. Year to date, public DB plans are now up 0.6% against their goal.

However, these plans are still 9.7% behind their 12-month target as assets have fallen by 2.2% over that period.

For their part, endowments and foundations surpassed their goal of real returns in excess of inflation and 5% spending by 1.2% in April.

They are now up 1.6% against their target year to date, but lag their 12-month return target by 8.4%.

BNY Mellon’s asset class scorecard showed that long duration fixed income and emerging market equities continued to lead the pack among asset class returns, up 8.6% and 6.3%, respectively, year to date.

Only real estate investment trusts posted a loss in April, down 50 basis points. Still, these are up 3.9% on the year.

— Check out DC Plans at Nonprofits Are Where the Growth Is: Cerulli on ThinkAdvisor.