US - pension funds grappling with volatility and plummeting stocks in the current market should focus on the light at the end of the tunnel, according to a recent Russell Investments study.
The report said just one plan in every four would have funding status below 90% and few pension plans would be significantly underfunded by 2017.
But according to BNY Mellon Asset Management, the funding status of a typical US pension plan dropped 4.8 percentage points in June because of lingering underperforming stocks, which were expected to get even worse.
BNY Mellon also found asset returns of moderate risk pension portfolios fell 5 percentage points despite a 0.2 percentage point decline in liabilities.
Peter Austin, executive director of BNY Mellon Pension Services, said the stock market decline reflected pension funding status concerns in the current market.
"Looking ahead, we see continuing weakness in the global economy, as well as continuing deleveraging of the US financial system. These factors, along with the uncertainty of energy prices and energy policies, could dampen the equity markets and lead to higher interest rates. It is difficult to determine whether the resulting decline in liabilities will more than offset sluggish or non-existent gains in asset values."
Susan Mangiero, president and chief executive officer of Connecticut-based research and analysis company Pension Governance LLC, said funds that separated investment issues and risk management were more likely to succeed beyond 2017.
Mangiero said existing investment policies were not sufficient in addressing risk: "It's more common to see risk addressed in an investment policy as opposed to a separate document. That should be broken out in a separate risk management policy statement. Pension funds should have a lot of their investment policy statement dedicated to how they're going to manage risk internally, but look at how they compare to other risk management policies."
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