August 03, 2012
--- The funded
status of the typical U.S. corporate pension plan reached a record low in July. ---
The funded status fell 2.9 percentage points, to 68.7%, the
lowest level since BNY Mellon began tracking this information in December 2007,
according to the BNY Mellon Pension Summary Report for July 2012.
The decrease was driven by a sharp spike in liabilities,
which increased 5.5%, outpacing a 1.2% gain in assets at the typical corporate
plan. The funded status of the typical plan has now fallen 3.7 percentage
points during 2012.
The rise in liabilities resulted from the 34 basis-point
drop in the Aa corporate discount rate to 3.64%. Plan liabilities are
calculated using the yields of long-term investment grade bonds. Lower
yields on these bonds result in higher liabilities.
Assets in the typical plan benefited from rising equity
markets, including a 1% gain in U.S. equity markets and a 1.1% increase in
international developed markets.
“The continuing uncertainty regarding the Eurozone and lack
of a coordinated response to the debt issues in Europe continue to send
investors into bonds that are perceived to be a safe haven,” said Jeffrey B.
Saef, managing director, BNY Mellon Asset Management, and head of the BNY
Mellon Investment Strategy and Solutions Group, a BNY Mellon division. “As long this uncertainty remains, we expect to see very low
interest rates, which will continue to pressure plan sponsors.”
Saef also noted that portfolios for plan sponsors have
performed well, with assets rising more than 7% during the first seven months
of the year for the typical U.S. corporate plan. However, he added, “Hitting a
return target isn’t enough these days if you’re not keeping up with the growth