Strong May Equities Help Lift Pension Funding

June 5, 2009 ( - A third consecutive month of strong performances by global equities overcame an increase in pension plan liabilities to lift the funded status of a typical U.S. corporate pension plan by 0.6% in May, according to BNY Mellon Asset Management.

According to a news release, the funded status of the typical plan has improved for three months in a row.

The BNY data shows assets for a typical moderate risk portfolio increased 4.1%, while liabilities rose 3.3% during the month. For the year through May 31, the funding ratio for the typical plan is now up 10.2%, as represented by the BNY Mellon Pension Liability Index.

“We have been anticipating a decline in long Aa corporate bond yields for some time, and in May we began to see a move in this direction,” said Peter Austin, executive director of BNY Mellon Pension Services, in the announcement “The 40 basis-point decline we observed in May lowered the discount rate for these bonds to 6.85% and drove pension plan liabilities higher. We remain wary of a continued decline in corporate bond yields, which would further increase pension plan liabilities.”

Austin noted that Standish Mellon Asset Management Company continues to see pension plans increase their allotments to long-term investment-grade corporate bonds to protect themselves against the risk of higher liabilities, according to the announcement.