Rising equities and interest rates drive improvement
BOSTON, February 4, 2011— The continuing rally in equities and a rise in interest rates in January combined to drive the funded status of the typical U.S. corporate pension plan 3.3 percentage points higher to 87.6 percent, according to monthly statistics published by BNY Mellon Asset Management.
This is the fifth consecutive month of improvement, boosting the funded status for these pension plans to their best levels since October 2008, according to the BNY Mellon Pension Summary Report for January 2011.
In January, assets for the typical corporate pension plan increased 1.4 percent, due to a 2.2 percent gain in U.S. equities and a 2.4 rise in international stocks, according to the report. Liabilities fell 2.4 percent during the month as the Aa corporate discount rate rose 21 basis points to 5.64 percent from 5.43 percent.
Plan liabilities are calculated using the yields of long-term investment grade corporate bonds. Higher yields on these bonds result in lower liabilities.
"The funded status of the typical plan has now improved 16.3 percentage points since August, which continues the longest and steepest improvement in funded status since we began reporting our monthly pension statistics in 2006," said Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management. "Until this month, the improvement was driven primarily by the strong rally in the equities markets; in January the bump in interest rates was the main contributor."
Austin added, "The funded status of the typical U.S. corporate pension plan is meaningfully improved from a year ago. A steady stream of encouraging economic news is resulting in more confidence in the equity and fixed income markets, which should result in continuing good news for U.S. pension sponsors. As funding levels improve further, more plan sponsors will be discussing and implementing risk reduction programs based on target funding levels. The events of the great recession are still fresh in the minds of plan sponsors, and protection of the improved funding, especially for frozen plans, should be of utmost importance."
BNY Mellon Asset Management is the umbrella organization for BNY Mellon's affiliated investment management firms and global distribution companies.
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