Pension Funding Reaches Best Level Since Market Crash

April 5, 2010 ( - A strong March rally in U.S. and international stocks drove the value of U.S. corporate pension plan assets higher, resulting in the best funding status for the typical U.S. corporate pension plan since October 2008, according to monthly statistics published by BNY Mellon Asset Management.

The funding status in March rose 2.8 percentage points to 88.1%. Assets for the typical U.S. corporate pension plan increased 3.7%, outpacing the 0.5% gain in liabilities for the month, as reported by the BNY Mellon Pension Summary Report for March 2010.    

The modest increase in liabilities was due to interest accrual, as the Aa corporate discount rate remained unchanged at 5.96%, according to an announcement.  

“On the asset side, March was even better than February as pension plans benefited from a powerful performance from U.S. stocks, particularly small caps,” said Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management, in the announcement. “While the interest rates affecting liabilities were unchanged in March, we did see a narrowing of spreads for the Aa corporate bonds as long U.S. Treasury yields increased to their highest level since October 2008.”

Plan liabilities are calculated using the yields of long-term investment grade corporate bonds – higher yields result in lower liabilities.

“Plan sponsors have been expressing more interest in establishing pension funding objectives that incorporate specific targets, which can be aligned with regulatory or market-based valuation techniques,” noted Austin. “The implementation of liability driven investing (LDI) strategies that incorporate date-specific funding targets will become more popular as plan sponsors understand the opportunities available to improve plan funding while managing downside risk.”

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