The funding status of U.S. corporate pension plans increased in October, primarily due to a reduction in liabilities resulting from higher discount rates. Despite negative investment returns, pension funding status is at its highest point in decades. Various trackers indicate that pension funding ratios have risen, with assets declining but liabilities decreasing more significantly. Pension discount rates are at their highest since early 2010, resulting in improved funded status. Experts suggest that pension plan sponsors should consider de-risking strategies and evaluate potential plan terminations. Projections show that pension funding status is expected to continue increasing assuming current discount rates and asset returns. However, different scenarios with varying interest rates and returns could impact funded ratios differently. Institutional plans have performed well despite negative returns in the third quarter. Overall, U.S. corporate pension funding ratios declined slightly in October due to a drop in equities.
In other news, the five New York City public pension systems achieved a strong aggregate 10.0% return in the 2024 fiscal year, surpassing the 7% target rate set by the state legislature. The City's required contributions to the pension system will be reduced by approximately $1.81 billion over the next five fiscal years. The Systems' total assets under management at the close of the 2024 fiscal year stand at over $274 billion, with diversified holdings across asset classes. The Systems' funded ratio for the combined funds was 83%, exceeding the average of U.S. public pension plans of 78%. The Systems' asset allocations are based on factors including economic risk, return, performance, and beneficiary distributions. Infrastructure holdings delivered a strong return of 10.3%, while alternative credit holdings achieved a healthy net return of 12.3%. Private equity holdings achieved a net return of 5.1%, but private real estate portfolios struggled with a negative 7.1% return. Hedge fund strategies achieved a net return of 6.8%. The Systems' strategic asset allocation was reviewed and amended to increase the potential allocation to non-traditional assets from 25% to 35%. The Systems' mission is to deliver excellent investment advice and service to plan trustees in support of fulfilling NYC's long-term pension obligations. [d785847e] [48af12fe] [c3f96827]