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Apr 05

Pension funded status ticks up again

Posted by Stephen Taub in pensionspension fundsPension Benefit Guaranty CorporationPBGCCashBNY Mellon Asset Management

Stephen Taub

Follow the bouncing stock market.

The funded status of the typical U.S. corporate pension plan in March climbed only slightly last month, by 0.5 percentage points to 88.5 percent, according to BNY Mellon Asset Management.

Even so, it was another monthly improvement, extended the streak to seven straight. As a result, in the first three months of this year, the funding ratio for the typical corporate plan has improved by 4.2 percentage points.

March was a fairly complex month, however, for pension plans.

Assets for the typical corporate plan were unchanged in March, as the 0.5 percent increase in U.S. equity markets was offset by a 2.2 percent decline in international developed markets, according to the report.  

Liabilities decreased 0.5 percent during the month as the Aa corporate discount rate increased from 5.54 percent to 5.61 percent, according to the report.

Keep in mind that plan liabilities are calculated using the yields of long-term investment grade corporate bonds.  Higher yields on these bonds result in lower liabilities.

With the gain in March, the funded-status moves closer to the 90 percent level last achieved in October 2008.

Now that the funded level has sharply improved, BNY Mellon points out that many plans are mulling whether to take a more conservative approach to their investing strategy. They are weighing the advantages of implementing risk reduction strategies through higher bond allocations that reduce future funding volatility versus pursuing additional returns through equities, alternatives and other return-seeking asset classes to further improve their funded status in a rising rate environment.

Meanwhile, The Pension Benefit Guaranty Corp. (PBGC) said it helped 53,000 people keep their pension benefits in the first quarter of fiscal 2011, which covered the October-to-December-2010 period. 

PBGC said it worked with nine companies in bankruptcy to preserve their pension plans, whether by the reorganized company or by the new owner of their operations. The continuation of the plans means that workers will receive the benefits they were promised, and more than $1.5 billion in pension liabilities were kept off the agency's books, it said.

"PBGC strives to keep pension promises in the hands of the employers who make them," said Director Josh Gotbaum.

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