March Improvement Continues Seven-Month Upward Trend
BOSTON, April 5, 2011 — The funded status of the typical U.S. corporate pension plan in March inched up 0.5 percentage points to 88.5 percent, according to monthly statistics published by BNY Mellon Asset Management.
Although the gain in March was small, this was the seventh straight month of improvement, according to the BNY Mellon Pension Summary Report for March 2011. So far this year, the funding ratio for the typical corporate plan has improved 4.2 percentage points.
Assets for the typical corporate pension plan were unchanged in March, as the 0.5 percent increase in U.S. equity markets was offset by a 2.2 percent decline in international developed markets, according to the report. Liabilities decreased 0.5 percent during the month as the Aa corporate discount rate increased from 5.54 percent to 5.61 percent, the report noted.
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 U.S. corporate pension plans has now been above 85 percent for three months in a row," said Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management. "We are ever so close to the 90 percent funded-status milestone, which was last achieved in October 2008. Sponsors expect funding levels to continue to improve, and are expressing strong interest in reviewing asset allocation options for their plans."
Austin noted that many plans are weighing the advantages of implementing risk reduction strategies through higher bond allocations that reduce future funding volatility versus pursuing additional returns through equities, alternatives and other return-seeking asset classes to further improve their funded status in a rising rate environment.
BNY Mellon Asset Management is the umbrella organization for BNY Mellon's affiliated investment management firms and global distribution companies.
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, providing superior asset management and wealth management, asset servicing, issuer services, clearing services and treasury services through a worldwide client-focused team. It has $25.0 trillion in assets under custody and administration and $1.17 trillion in assets under management, services $12.0 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 at www.bnymellon.com.