January Pension Funding Improvement Reversed in February

March 6, 2009 (PLANSPONSOR.com) - Following a 5% improvement in January, funding ratios at the typical U.S. corporate pension plan dropped six percentage points in February, according to BNY Mellon Asset Management.

Moderate risk assets declined 6.4% in February, while liabilities for these plans decreased 0.6% during the month, according to a press release.  For the year to date, the funding ratio for the typical plan has declined one percentage point, as represented by the BNY Mellon Pension Liability Index.  

Since the beginning of 2008, the funded ratios for these plans have fallen 32.3 percentage points.

“Rapidly falling equity values continue to inflict pain on U.S. pension plans,” said Peter Austin, executive director of BNY Mellon Pension Services, in the press release.  “U.S. stocks fell for a second straight month and have dropped 18% so far this year.  International stock markets have done even worse.  Pension plans had some very minor relief from the widening of corporate bond spreads, which drove the small drop in liabilities.”

Austin warned that the threat that these spreads will narrow and that corporate bond yields will fall remains, and plan will see another rise in liabilities.  With “considerable skepticism” regarding a market rally, Austin says BNY Mellon sees continuing interest from plans seeking to manage their exposure to pension liabilities.