Pension Plans Continue Funding Recovery

December 4, 2009 ( strong November performance by U.S. equities has led to a 2.6% boost in the funded status of the typical U.S. corporate pension plan, BNY Mellon Asset Management reported.

According to BNY Mellon’s latest monthly data, the equity market’s 5.7%-November increase helped increase the funding status to 82.5% at month end, the highest since May and up from 79.9% at the end of October.

A news release said assets for the typical U.S. corporate plan rose 3.6%, outpacing the 0.2% gain in liabilities during the month, which reflected interest accruals as the discount rate for November was unchanged from October.  For the year, through November 30, the funding ratio for the typical plan is up 8.6%, as represented by the BNY Mellon Pension Liability Index.

“U.S. corporate pension plans continued their road to recovery as domestic and international equity markets registered strong results,” said Peter Austin, executive director of BNY Mellon Pension Services, in the news release.  “Equities have rallied in eight of the last nine months and have been the driving force for the funding improvement.  Liability discount rates are only 14 basis points lower for the year, which has limited the impact on pension plan liabilities. Plan sponsors that maintained their equity allocations, which hasn’t been easy given market volatility, have been rewarded for their commitment to their strategic asset allocation.”

Plan liabilities are calculated using the yields of long-term investment grade corporate bonds.  Lower yields on these bonds result in higher liabilities.