US Pension Funding Climbs 3.5% in December

January 5, 2006 ( - The funded status of a typical US pension plan improved by 3.5% in December, recovering from a slight 0.8% fall the month before, according to the latest data from Mellon Financial Corporation.

According to recent data from the Mellon Pension Liability Indexes, which tracks the financial health of US pension plans, the assets of a moderate risk US pension plan rose 12.1% in December, outpacing the 1.2% rise in typical liabilities. Over the last five years, pension assets and liabilities have for the most part stayed neck-and-neck, with assets increasing at a 7.3% rate and liabilities at a 7.1% rate.

In November, the assets of a typical plan were 11.3% higher at the end of November, while liabilities were 4.1% higher (See Pension Funded Status Lost Ground in November ).

Mellon attributes the 3.5% rise in the funded status of plans to higher discount rates.

The assets of a moderate risk pension portfolio rose 0.7%, while liabilities declined 2.8%, due to sharply higher long-maturity bond yields, which lowers the value of pension liabilities and bonds.

“Overall, the typical U.S. pension plan finished the year in much better shape then it started,” said Peter Austin, executive director of Mellon Pension Services, in a press release from Mellon. “Interest rates finished the year higher, reducing the value of liabilities for the typical plan. At the same time, rising equity markets contributed to higher assets at the typical US pension plan,” he added.