On the final day of January, 2016, the U.S. national debt officially surpassed $19 trillion, which is equal to more than $58,000 per American citizen. This monstrous fourteen-digit figure is dwarfed by the government’s unfunded liabilities, which are estimated at $127 trillion – and it’s not just the public sector that’s underwater, but private pensions, too. According to BNY Mellon’s Monthly Institutional Scorecard, the funded status of U.S. corporate pensions fell “sharply” in January to 79.7%, down from 83.5% the prior month.
Patience Wearing Thin
“Plan sponsors are beginning to lose their patience with the onslaught of negative news surrounding their pension plans,” said Andrew Wozniak, head of BNY Mellon Fiduciary Solutions, in a recent statement. “Whether it is increased longevity driving liabilities higher, poor investment returns or the negative impact of lump sum payments on their funded percentage, some sponsors are beginning to think that the only solution to their problem is proactively funding their plans.”
The S&P 500 pension deficit is estimated to have increased by $83 billion, to $411 billion, in January, as assets fell to $1.61 trillion and liabilities rose to $2.02 trillion. For the year ending January 31, pension assets returned -5.2%, but despite this and the sharp decline in funded status the final month of the period, overall funded status actually increased on a year-over-year basis, up 200 basis points from 77.7%.
Falling Short of Return Targets
Public defined benefit (“DB”) plans and foundations/endowments also performed poorly in January, falling short of the Scorecard’s monthly return targets by 4.2% and 4.0%, respectively. Assets dropped by 3.6% for DB plans and foundations/endowments. The typical DB plan is now 12.6% behind its one-year return targets, while foundations and endowments are short by 12.0%, according to BNY Mellon.
“Of the asset classes our Scorecard tracks, only global fixed-income, up 0.9%, and long government/ credit, up 2.1%, showed positive returns on the month,” said Mr. Wozniak. “Equities of all types, REITs, high-yield bonds, emerging-market debt, and hedge funds were all down. It was certainly a tough environment for investors.”
January was the third consecutive month in which the funded status of the typical U.S. corporate pension plans decreased and public DB plans and foundation/endowments failed to meet their monthly return targets.
For more information, download a pdf copy of the report.
Jason Seagraves contributed to this article.