A BNY Mellon news release said liabilities decreased almost the same amount as the assets of a typical U.S. pension plan with a moderate risk portfolio. A 75-basis-point widening in high-grade corporate yield spreads helped drive typical pension liabilities 6.4% lower, while the value of the assets in a moderate-risk portfolio decreased 6.7% in September.
Year-to-date funding ratios for typical plans have declined approximately 4.3%.
“We find ourselves in an unprecedented environment,” said Peter Austin, executive director of BNY Mellon Pension Services, in the news release. “The change in asset and liability values for the month of September was more than what we have historically seen for entire years.”
Austin added: “As plan sponsors look ahead, a major concern is the inevitable narrowing of spreads for corporate bonds as we work our way through the credit crisis. Falling spreads will increase the value of plan liabilities. Sponsors fear that the narrowing of spreads will not be matched by similar asset appreciation, further deteriorating plan funded status that has already seen a decline of over four percent this year. This will place additional pressure on company balance sheets at a time when recession fears are more prevalent.”
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