BNY Mellon Reports Uptick in Pension Funded Status in September

October 6, 2009 ( - U.S. stocks rose for the seventh consecutive month, helping to increase the funded status of the typical U.S. corporate pension plan by 0.6 percentage points in September, according to monthly statistics published by BNY Mellon Asset Management.

The funded status of the typical plan increased to 80.3% at the end of September, up from 79.7% at the end of August (see Pension Funding Gap Narrows in August ).

A BNY Mellon press release said assets for the typical U.S. corporate plan increased 2.9% versus a gain of 2.1% for liabilities during the month.  For the year, through September 30, the funding ratio for the typical plan is now up 6.4 percentage points, and has topped 80% for the first time since May, as represented by the BNY Mellon Liability Index.

“As was the case in August, pension plans in September benefited because improving stock markets in the U.S. and around the world rose enough to increase plan assets faster than the increase in liabilities, which once again was driven by the decline in Aa corporate bond yields,” said Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management, in the press release. “The long Aa corporate bond discount rate continued its long descent, dropping 14 basis points in September to 5.61%. Discount rates are now at their lowest levels since August 2005.”

“Demand for corporate bonds and generally improving financial markets are quickly narrowing the spread between these bonds and Treasuries to more historical levels,” said Austin. “This demand has received a boost from plan sponsors who are buying the bonds to control the risk and volatility in their plans. Now that these spreads have narrowed, sponsors need to evaluate the risks in the equities markets versus the probability of further declines in the yields for these bonds.”