The funded status of the typical US corporate pension plan increased 0.8 percentage points to 88.5% in June as assets fell less than liabilities, according to monthly statistics published by BNY Mellon Asset Management.
Liabilities for the typical plan fell 2.1% as the Aa corporate discount rate increased 19 basis points to 5.53% from 5.34%, according to the BNY Mellon Pension Summary Report for May. Plan liabilities are calculated using the yields of long-term investment grade corporate bonds. Higher yields on these bonds result in lower liabilities.
Assets for the typical plan fell 1.1%, reflecting declines in US and global equities, the report says.
“The June results reversed some of the losses that pension funds sustained in May,” says Peter Austin, executive director of BNY Mellon Pension Services. “However, the volatility in equity returns in recent months reflects the fragility of the global markets. The risk of further deterioration in asset values complicates the decision making of plan sponsors.”
Austin says one course for plan sponsors would be to lock in the improvements in pension funding that have been achieved since the funded status reached a nadir last August. He says the other choice would be to maintain a more aggressive asset allocation posture in an effort to improve the funded status of their plans through asset returns.
The statistics for the first six months of 2011 were adjusted to reflect updated information obtained from Standard & Poor’s regarding the funded status of the companies comprising the S&P 500 Index. BNY Mellon typically does its annual revision of these statistics every June.
(CM)