The funded status of the typical U.S. corporate pension plan increased 3.1 percentage points in June to 89.5% due to a rise in the AA corporate discount rate, according to the BNY Mellon Pension Summary Report for June 2013.
This marks an improvement for the second month in a row, with the funded status reaching its highest point since June 2011. As the Aa corporate discount rate rises, liabilities fall: typical corporate plan liabilities fell 5.0% as the discount rate rose to 4.69%, said the report.
Year to date, the funded ratio is up 13.2 percentage points, ISSG said. However, assets for the typical corporate plan fell 1.6% as U.S. equity markets had their first losing month in 2013.
“Investors are growing more confident that the U.S. Federal Reserve is getting ready to taper its easing policies, and this is resulting in higher interest rates, which benefits plans,” said Jeffrey B. Saef, managing director, BNY Mellon Investment Management, and head of the Investment Strategies & Solutions Group.
Saef added that many pension plans view a funded status of 90% as a threshold for shifting a portion of their equities into liability-matching assets and longer-term corporate bonds.
Funded Status of U.S. Pension Plans Increases on the Back of Discount Rate Rise
The funded status of the typical U.S. corporate pension plan increased 3.1 percentage points in June to 89.5% due to a rise in the AA corporate discount rate, according to the BNY Mellon Pension Summary Report for June 2013.