Higher Rates Lead to Lower Liabilities
BOSTON, December 7, 2011 — Liabilities fell faster than assets for the typical U.S. corporate pension plan in November resulting in a slight improvement in funded status, according to BNY Mellon Asset Management. For the month, the funded status of the typical plan increased 0.3 percentage points to 75.1 percent.
Year to date, the funded status has declined 10 .0 percentage points, according to the BNY Mellon Pension Summary Report for November.
In November, assets for the typical corporate plan fell 0.7 percent as equity markets in the U.S. and other developed markets retreated, according to BNY Mellon. Plan liabilities decreased 1.1 percent as the Aa corporate spreads widened 27 basis points, the report said. Plan liabilities are calculated using the yields of long-term investment grade corporate bonds. Higher yields on these bonds result in lower liabilities.
"The rally at the end of November enabled equities to regain much of the ground that they had been losing for the majority of the month," 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). "By the time the dust had settled, we ended up with a very small change in funded status for the month."
Market participants remain focused on the recovery of the U.S. economy, the U.S. budget deficit and the European debt crisis, Saef said. "These factors continue to drive interest rates, equity prices and corporate bond spreads, all of which affect the health of corporate pension plans."
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