The funded status of the typical U.S. corporate pension plan hit a record low when it fell 6.5 percentage points to 68.9% in May, according to BNY Mellon, which has been tracking this information since December 2007.
May had the worst monthly decline in U.S. equity markets in 2012, which, coupled with lower interest rates, sent liabilities higher, according to the BNY Mellon Pension Summary Report for May. These two factors combined to wipe out all the gains made so far this year.
Assets for the moderate U.S. corporate pension plan went down 3.9% in May as U.S. equity markets fell 6.2% and international developed markets dropped 11.5% over uncertainty about Greek debt and a potential eurozone crisis, the report says.
The Aa Corporate discount rate fell 31 basis points to a record low of 3.98%, and liabilities for U.S. corporate plans rose 5.1% during May. Plan liabilities are calculated using the yields of long-term investment grade corporate bonds. Lower yields on these bonds result in higher liabilities.
The funded ratio has fallen 20.3% since April last year, when it reached 89.2%.
“After a strong first quarter, investors are again focusing on continuing weakness in European markets and lack of a coordinated long-term solutions to the debt issues, just as they did in 2011,” says Jeffrey Saef, managing director of BNY Mellon Asset Management. “Until investors have more clarity, we are likely to see continuing weak equity markets and low interest rates.”