The funded status of the typical U.S. corporate pension plan hit a record low again this July, falling 2.9 percentage points to 68.7%, BNY Mellon says.
In May, the status fell to 68.9%, which was the lowest point ever recorded since BNY Mellon started tracking the information in December 2007.
While the typical corporate plans assets grew by 1.2%, liabilities increased by 5.5%, resulting from a 34 basis point drop in the Aa corporate discount rate to 3.64%. Yields on long-term investment grade bonds determine plan liabilities, so lower yields on these bonds result in higher liabilities.
The funded status of the typical plan has now fallen 3.7 percentage points year-to-date.
Assets in the typical plan benefited slightly from rising equity markets, however, including a 1% gain in U.S. equity markets and a 1.1% increase in international developed markets, BNY Mellon says.
“The continuing uncertainty regarding the euro zone and lack of a coordinated response to the debt issues in Europe continue to send investors into bonds that are perceived to be a safe haven,” says Jeffrey Saef, head of the BNY Mellon Investment Strategy and Solutions Group. As long this uncertainty remains, we expect to see very low interest rates, which will continue to pressure plan sponsors.”
Saef says portfolios for plan sponsors have performed well, with assets rising more than 7% during the first seven months of the year for the typical U.S. corporate plan. However, “hitting a return target isn’t enough these days if you’re not keeping up with the growth in liabilities, he says.
(OS)