Interest Rate Rise and Falling U.S. Equities Contribute to Decrease
NEW YORK, November 5, 2012 — Falling interest rates and a pause in the 2012 U.S. equities rally contributed to a 1.4 percentage-point decline in the funded status of the typical U.S. corporate pension plan in October, according to BNY Mellon.
For the year through October 31, the funded status has declined 1.7 percentage points to 73.6 percent, according to the BNY Mellon Pension Summary Report for October 2012.
Assets for the typical plan fell 0.7 percent as the equities rally in international markets failed to offset the decline in U.S. markets, BNY Mellon said. Liabilities for the typical plan increased 1.1 percent as the Aa corporate discount rate declined six basis points to 3.72 percent, BNY Mellon said.
Plan liabilities are calculated using the yields of long-term investment grade bonds. Lower yields on these bonds result in higher liabilities.
"October appears to have been a lacklustre month as investors await the election results," said Jeffrey B. Saef, managing director, BNY Mellon Asset Management, and head of the BNY Mellon Investment Strategy and Solutions Group. "Investors preferred corporate bonds over Treasuries, which drove liabilities higher even as Treasury yields rose."
The BNY Mellon Investment Strategy and Solutions Group is a division of The Bank of New York Mellon.
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