U.S. Pension Funding Status Falls to 74% in June

July 13, 2010 (PLANSPONSOR.com) - A combination of U.S. stock market declines and lower interest rates in June resulted in the lowest-funded status for the typical U.S. corporate pension plan since February 2009, according to BNY Mellon Asset Management.

The funded status in June declined six percentage points to 74%, BNY Mellon data showed.  Through the end of June, the funded status of the typical U.S. corporate plan is down 9.5 percentage points for the year.  

A press release said the falling stock markets resulted in a decline of 2.3% in assets at the typical U.S. corporate plan, while liabilities sharply increased in June, rising 5.6%, as reported by the BNY Mellon Pension Summary Report for June 2010.  Plan liabilities are calculated using the yields of long-term investment grade corporate bonds.    

The June rally in Treasuries led to a 39-basis-point drop in the Aa corporate discount rate to 5.34%, the lowest point since June 2005.  

“Poor asset returns and dropping interest rates are prompting both corporate and public sector plans to consider more active approaches to managing their funding strategies. Interest in Liability-Driven Investing (LDI) strategies remains high, with many sponsors adding objectives such as deadlines to reach specific target funding levels,” said Peter Austin, executive director of BNY Mellon Pension Services, in the press release.