Administration May 4, 2015

Pensions See Increased Funded Status in April

Rising interest rates helped improve U.S. corporate pension plan funding.
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The funded status of the typical U.S. corporate pension plan increased 2.9 percentage points in April to 90.1%, according to the BNY Mellon Investment Strategy and Solutions Group (ISSG).  

Public plans, endowments and foundations exceeded their targets for the month as asset values rose, the BNY Mellon Institutional Scorecard shows.

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For the typical U.S. corporate plan, assets in April increased 0.7%; while liabilities fell 2.6% as the Aa corporate discount rate rose 20 basis points (bps) to 4.06%. Plan liabilities are calculated using the yields of long-term investment grade bonds. Higher yields on these bonds result in lower liabilities. 

The funded status is 0.5 percentage points lower than at this time last year and 2.8 percentage points higher than at the beginning of the year.

”Corporate plans are seeing the benefits of a slight rise in interest rates, which have increased for three consecutive months and are pushing down liabilities,” says Andrew D. Wozniak, head of fiduciary solutions, ISSG. “Emerging markets equity and private equity both had strong months, benefiting public plans, endowments and foundations.”

Public defined benefit (DB) plans in April exceeded their return target by 0.9% as assets returned 1.5%, according to the monthly report. Year over year, public plans remain below their return target by 1.8%.

For endowments and foundations, the real return in April was 1.2% as assets returned 1.5%.  Year over year, endowments and foundations are behind their inflation plus spending target by 1.1%.

Data and Research May 4, 2015

Having a Plan for Retirement Increases Confidence

A survey suggests the workplace is emerging as a fruitful venue for engaging individuals in broader retirement planning.
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Forty-five percent of respondents to a survey from Deloitte Center for Financial Services feel “very secure” in having enough savings and income to maintain a comfortable retirement lifestyle.

This is a sizable jump from the 28% in Deloitte’s initial survey in 2012, but the survey report’s authors say this positive increase could be a direct result of strong recent growth in investment returns, and they are concerned this sentiment may be “fleeting.” It could be reversed by a downward shift in the economy or rising interest rates, which could influence stock market volatility.

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The majority (55%) of those surveyed still do not feel financially set for their senior years despite improved economic conditions.

Those with a formal plan for retirement savings and income were more than twice as likely to say they feel secure about their retirement as individuals without one. Yet, of those consumers surveyed who felt very secure about retirement, 17% did not have either a financial adviser or a plan for retirement. One in five respondents said they don’t have a plan for retirement because they haven’t taken the time to meet with a financial professional. Three in 10 said they intend to put a plan together, but haven’t set aside the time to do so.

The survey reveals the workplace is emerging as a potentially fruitful venue for engaging individuals in broader retirement planning, with surveyed consumers ranking workplace retirement plans as the second-most trusted source for financial information, ahead of an individual’s primary financial institution and behind only his or her primary financial adviser.

Fewer than one-third (29%) of consumers in the current survey felt that financial institutions in general were highly trustworthy, while only one-third of respondents felt that way about financial professionals overall. But that response was different when it came to assessing their own financial adviser, with 78% of respondents saying that they trusted them, compared to 68% in 2012.

The Deloitte Center for Financial Services commissioned Andrews Research Associates to conduct an online survey of 2,000 U.S. consumers in September 2014, focusing on the factors impacting respondents’ feelings of security around retirement finances. The consumer data was supplemented with in-depth telephone interviews with 178 financial advisers. The survey report is here.

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