A Mellon news release said that while assets of a moderate risk pension portfolio rose 1.9% in November , a sharp decline in long-term interest rates drove up the value of typical liabilities by 2.5%. Mellon tracks the financial health of US pension plans through its Mellon Pension Liability Indexes. November’s performance compared to a 1.5% October increase .
Despite November’s showing, the typical moderate risk pension portfolio was 7.2% better funded at the end of November than in January 2006, primarily due to a double-digit equity increase, which boosted asset values. Also interest rate hikes during the first five months of the year reduced liabilities, Mellon said.
Specifically, according to the Mellon data, the assets of a typical plan were 11.3% higher at the end of November, while liabilities were 4.1% higher.
“Low volatility and expectations of a soft landing for the economy helped nearly all asset classes,” said Peter Austin, executive director of Mellon Pension Services, in the news release.”However, evidence of a slowing economy raised expectations for a 2007 Federal Reserve rate cut and drove long-term interest rates down by 10 to 15 basis points. Lower rates raise the value pension liabilities and bonds.”