January 04, 2012

Funded Status of U.S. Pensions Falls to 72.4 Percent in December, According to BNY Mellon


Lower Rates Send Liabilities Higher at Year End

BOSTON, January 4, 2012 — A sharp bounce in liabilities in December resulted in a 2.7 percentage point decrease in the funded status of the typical U.S. corporate pension plan, according to BNY Mellon Asset Management.   For the year, the funded status declined 12.7 percentage points to 72.4 percent, according to the BNY Mellon Pension Summary Report for December 2011.

The decline in funded status was the second biggest calendar year decline since BNY Mellon began tracking this data in 2005.  The large decline in 2011 was due to the liability discount rate reaching a new historic low, 4.36 percent, surpassing the record set in September 2011, according to the report.  BNY Mellon noted that assets for the typical plan did increase 2.7 percent in 2011, but liabilities increased much faster, 20 percent, to send funding levels lower for the year.

The rise in liabilities during December was driven by a decrease in the Aa corporate discount rate, which fell 30 basis points to 4.36 percent, according to BNY Mellon.  Plan liabilities increased 4.6 percent in December, overshadowing a 0.8 percent increase in plan assets, the report said.  The plan assets increased as a result of a slight gain in U.S. equity markets, 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.

"The continuing uncertainty regarding the prospects for a U.S. economic recovery and the ongoing European debt crisis drove investors back into bonds during December, which sent interest rates lower," said Jeffrey B. Saef, managing director, BNY Mellon Asset Management, and head of the Investment Strategy & Solutions Group (a division of The Bank of New York Mellon).  "We expect continuing volatility until investors believe the recovery in the U.S. is sustainable and some resolution is reached in Europe."

BNY Mellon Asset Management is one of the world's leading asset management organizations, encompassing BNY Mellon's affiliated investment management firms and global distribution companies. Information about BNY Mellon Asset Management can be found at www.bnymellonam.com.

BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering superior investment management and investment services through a worldwide client-focused team. It has $25.9 trillion in assets under custody and administration and $1.2 trillion in assets under management, services $11.9 trillion in outstanding debt and processes global payments averaging $1.6 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com or follow us on Twitter @BNYMellon.

All information source BNY Mellon Asset Management as of September 30, 2011. This press release is qualified for issuance in the US only and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorized. This press release is issued by BNY Mellon Asset Management to members of the financial press and media and the information contained herein should not be construed as investment advice.  Past performance is not a guide to future performance. A BNY Mellon Company(SM).