August 03, 2011

Funded Status of U.S. Pensions Falls to 83.6 Percent in June, According to BNY Mellon


Drop in Interest Rates Sends Liabilities Up Sharply

BOSTON, August 3, 2011 — The funded status of the typical U.S. corporate pension plan in July fell 4.9 percentage points to 83.6 percent, the worst level since the beginning of the year and the lowest funded status since November 2010, according to monthly statistics published by BNY Mellon Asset Management.

Pension plans were hit by both increasing liabilities and falling assets, with the most significant impact coming from a rally in long corporate bonds. Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management, attributed the rally to increased demand for U.S. Treasuries, reflecting the instability of the U.S. and European economies and investors' flight to quality.

Liabilities increased 5.2 percent as the Aa corporate discount rate decreased 36 basis points to 5.17 percent, according to the BNY Mellon Pension Summary Report for July.   Plan liabilities are calculated using the yields of long-term investment grade corporate bonds.  Lower yields on these bonds result in higher liabilities.

Assets for the typical plan fell 0.7 percent, reflecting declines in U.S. and global equities, the report notes.

"Falling interest rates had a severe impact on the funded status of the typical corporate plan," said Austin. "As a result of the rate decline, corporate plans gave up all of the gains they had achieved in 2011 and finished July 1.5 percentage points lower than they were at the beginning of the year."

Austin added the debt ceiling issue and the growing focus on the U.S. budget are making it more difficult for plan sponsors to manage the volatility of funding levels.  He said, "Plans that hedged against falling rates through liability driven investment strategies were most successful in preserving their funded status during July."

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 $26.3 trillion in assets under custody and administration and $1.3 trillion in assets under management, services $11.8 trillion in outstanding debt and processes global payments averaging $1.7 trillion per day.  BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK).  Additional information is available at www.bnymellon.com and through Twitter @bnymellon.

All information source BNY Mellon Asset Management as of June 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)