Level Decreases to 69.8 Percent as Record Low Interest Rates Boost Liabilities
BOSTON, June 7, 2012 — The funded status of the typical U.S. corporate pension plan in May fell 6.5 percentage points to 69.8 percent, its lowest level since BNY Mellon began tracking this information in December 2007.
The decrease was driven by the worst monthly decline in U.S. equity markets in 2012 and lower interest rates, which sent liabilities higher, according to the BNY Mellon Pension Summary Report for May 2012. The report added that the two trends combined to erase all of the gains that had been recorded in the first quarter of 2012.
Assets for the moderate risk U.S. corporate pension plan in May fell 3.9 percent as U.S. equity markets declined 6.2 percent and international developed markets dropped 11.5 percent on uncertainty regarding the Greek debt and related euro zone issues, according to the BNY Mellon report.
Liabilities rose 5.1 percent as the Aa Corporate discount rate fell 31 basis points during the month to a record low of 3.98 percent, BNY Mellon said. Plan liabilities are calculated using the yields of long-term investment grade corporate bonds. Lower yields on these bonds result in higher liabilities.
"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," said Jeffrey B. Saef, managing director, BNY Mellon Asset Management, and head of the BNY Mellon Investment Strategy & Solutions Group (a division of The Bank of New York Mellon). "Until investors have more clarity, we are likely to see continuing weak equity markets and low interest rates."
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