Funded Status of Corporate Pensions Increased in May

Figures from BNY Mellon ISSG showed an increase of 5.6 percentage points, to 86.4%, the highest level since July 2011. The year-to-date funded ratio is up 10.1 percentage points.

The improvement was driven by a jump in the Aa corporate discount rate, which drove liabilities sharply lower, according to the BNY Mellon “Pension Summary Report” for May 2013. Liabilities for the typical corporate plan fell 6.3% as the discount rate on the Aa corporate bonds increased 46 basis points to 4.3%, the sharpest rise in nearly two years, the report said. Plan liabilities are calculated using the yields of long-term investment grade bonds. Higher yields on these bonds result in lower liabilities.

Assets for the typical corporate plan increased 0.2% as U.S. equity markets rose.

“Signs that the quantitative easing program will end coupled with rising consumer confidence are making bonds less attractive, which is sending interest rates higher,” said Jeffrey B. Saef, managing director, BNY Mellon Investment Management, and head of the ISSG. “Corporate plans are in much better shape and expressing increasing interest in strategies that could protect them from future funded status volatility.”