Pension Funding Continued Upward in February

March 4, 2011 ( – U.S. corporate pension plans in February continued to benefit from the global stock market rally, as the funded status of the typical corporate plan rose 0.4% points to 88%, according to BNY Mellon Asset Management.    

A news release said the latest report represents the sixth consecutive month of improvement, boosting the funded status for the pension plans to their best levels since October 2008. So far this year, the funded ratio for the typical corporate plan has improved 3.7%.

In February, assets for the typical corporate pension plan rose 2.3%, due to a 3.6% improvement in U.S. equities and a 3.3% gain in international stocks, according to the report.  Liabilities increased 1.7% during the month as the Aa corporate discount rate fell 10 basis points to 5.54% from 5.64%.

“U.S. corporate pension plans have seen a steady stream of good news since August 2010, when the funded status of these plans was hovering slightly above 70%,” said Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management.  “This rapid improvement in funded status has prompted a growing number of pension sponsors to reassess their asset allocation strategies.”

One approach includes reductions in plan funding volatility through higher allocations to fixed income and/or interest rate risk hedging programs, Austin noted, according to the news release.  Another approach is continued reliance on return-seeking asset classes, such as equities and alternatives, to drive funding improvement.

Target funding strategies are also gaining traction as plan fiduciaries recognize the need to be prepared to make timely and informed decisions, such as further plan de-risking if interest rates increase and equity markets continue appreciating.