A powerful stock market rally and wider spreads for corporate bonds combined to improve the funding status of a typical U.S. corporate pension plan by 6.4 percentage points in March, according to monthly statistics published by BNY Mellon Asset Management.
Assets for a typical moderate risk portfolio jumped 5.6%, while liabilities fell 3.5% during the month. For the year to date, the funding ratio for the typical plan is now up 5.7 percentage points, as represented by the BNY Mellon Pension Liability Index.
“This was, by far, the best month for pension plans since the funding status of these plans began deteriorating in May 2008,” says Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management.
“The strong rebound in stock markets around the world provided much-needed relief for pension funds,” continues Austin. “They also benefited as long double A corporate bond yields rose 60 basis points during March, which contributed to an increase in the double A corporate discount rate from 6.84% to 7.19%, driving down the value of liabilities.”
Still, Austin warned plans face the threat of narrowing spreads and lower yields.
“With corporate bond yields well over their historic levels, we expect them to drop over time, which would increase the liabilities for these plans. If that were to happen, pension plans will need either more help from the equity markets or increasing skills in managing their exposure to pension liabilities.”
L.D.