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Status of U.S. Pensions drops to 71.3
Percent, according to BNY Mellon Asset
lowest funding level in Four-Year History of
September, 2010-- Slumping stock markets and
a decline in the discount rate for Aa
corporate bonds in August combined to send
the funded status of the typical U.S.
corporate pension plan down 5.6 percentage
points to 71.3 percent, the lowest funding
level since BNY Mellon Asset Management
began tracking this data in 2006.
For the month of August, assets for the
typical plan fell 2.1 percent while
liabilities increased 5.5 percent, according
to the BNY Mellon statistics.
Weakening consumer confidence and concerns
over a slowing economic recovery contributed
to a 4.7 percent fall in U.S. equities, with
international stocks dropping 3.1 percent,
according to the BNY Mellon Pension Summary
Report for August 2010.
The report states that the Aa corporate
discount rate fell from 5.29 percent at the
end of July to 4.92 percent at the end of
August, its lowest level in at least 30
Plan liabilities are calculated using the
yields of long-term investment grade
corporate bonds. Lower yields on these bonds
result in higher liabilities.
"August was one of the worst months of 2010
for corporate pension plans as they were hit
by sharply rising liabilities as well as
declining assets," said Peter Austin,
executive director of BNY Mellon Pension
Services, the pension services arm of BNY
Mellon Asset Management.
"While corporate spreads increased, the
dramatic decline in Treasury yields,
reflecting a flight to quality, pushed
nominal corporate interest rates to historic
levels. Since March, pension funds have had
little to cheer about, as the funded status
for the typical corporate plan has fallen
more than 14 percentage points."
Austin added that the downward trend in
funding status and high market volatility
are motivating an increasing number of U.S.
corporate pension plans to take steps to
limit swings in funding status.
He said, "Many plan sponsors are loath to
shift significant assets to fixed income via
liability-driven investing (LDI) strategies,
as they are hoping to recover their funded
status through equity returns. Despite this,
there is a clear trend toward the
establishment of programs that incorporate
contribution and asset allocation targets to
achieve desired plan funding levels with