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Dec 07
2010

Pension plan funding continues slow gains

Posted by Stephen Taub in pensionspension fundsPension Benefit Guaranty CorporationCashBNY Mellon Pension ServicesBNY Mellon Asset Management

Stephen Taub

Pension plans' funding status improved again last month as stocks and interest rates continued to climb.

The typical US corporate pension plan in November saw its status inch up to 80.5 percent from 80.3 percent the prior month, according to monthly statistics published by BNY Mellon Asset Management.    

Assets for the typical plan declined 0.4 percent. A slight gain of 0.6 percent in the US equity markets was offset by a drop of 4.8 percent in international stocks, according to the BNY Mellon.

The increase in the Aa corporate discount rate to 5.32 percent from 5.23 percent drove the typical plan's liabilities 0.7 percent lower during the month, according to the report.

BNY Mellon explains that Plan liabilities are calculated using the yields of long-term investment grade corporate bonds.  Higher yields on these bonds result in lower liabilities.

"We continue to move up from the nadir of funded status that was recorded at the end of August 2010, although we remain below the level that was reported at the beginning of this year," said Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management.  

Meanwhile, the Pension Benefit Guaranty Corporation (PBGC) recently said in the past year it took over failed pension plans covering nearly 109,000 workers and retirees, and helped prevent the termination of plans covering about 250,000 others. 

Of course, a major market correction could send us back below 80. And BNY Mellon is always quick to warn that a funding level of just above 80 is still historically low.

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