During the last month of the year, the assets of a moderate risk pension portfolio rose 0.7%, while typical liabilities declined 2.8%, due to sharply higher long-maturity bond yields. During the year, assets at a moderate-risk U.S. pension plan rose 12.1%, significantly outpacing the 1.2% rise in typical liabilities, according to a press release. Over the past five years, pension plans have managed to keep pace with liabilities, according to Mellon: assets have increased 7.3%, just ahead of liabilities, that have risen 7.1%.
“Overall, the typical U.S. pension plan finished the year in much better shape then it started,” said Peter Austin, executive director of Mellon Pension Services. “Interest rates finished the year higher, reducing the value of liabilities for the typical plan. At the same time, rising equity markets contributed to higher assets at the typical U.S. pension plan.”
Better Than November
Liabilities for pension plans usually fall when interest rates rise. Unexpected changes in a plan’s demographics, among other factors, also affect the size of the benefit liability. December’s results were an improvement from November, when Mellon noted that assets of a moderate risk pension portfolio rose 1.9% in November, but a sharp decline in long-term interest rates drove up the value of typical liabilities by 2.5% (see Pension Funded Status Lost Ground in November ).
Mellon measures the performance of liabilities through its Mellon Pension Liability Indexes, which were launched in March 2006. These indexes are designed to track the market values and market returns of pension liabilities for young, average and mature pension plans. (See more about the indexes HERE )