Rising Stock Markets Propel Funding Status of U.S. Pensions Higher in August, According to BNY Mellon Asset Management
September 03 2009 - 7:54AM
PR Newswire (US)
Funding Status of Typical Corporate Plan Nears 80 Percent BOSTON,
Sept. 3 /PRNewswire-FirstCall/ -- Rising stock markets around the
world drove the assets of the typical U.S. corporate pension plan
higher, resulting in an improvement of the funded status of the
typical plan by 0.5 percentage points to 79.7 percent at end of
August, up from 79.2 percent at the end of July, according to
monthly statistics published by BNY Mellon Asset Management. Assets
for the typical moderate risk portfolio increased 2.7 percent,
outpacing the 2.1 percent rise in liabilities for the month. For
the year, through August 31, the funding ratio for the typical plan
is now up 5.8 percentage points, as represented by the BNY Mellon
Pension Liability Index. "Six straight months of improving stock
markets have bolstered the assets of these plans, which is good
news given the corresponding decline in Aa corporate bond yields,"
said Peter Austin, executive director of BNY Mellon Pension
Services, the pension services arm of BNY Mellon Asset Management.
"The long Aa corporate bond discount rate dropped from 5.88 percent
at the end of July to 5.75 percent at the end of August, which is
the lowest level since February 2007." Plan liabilities are
calculated using the discount rate of long-term investment grade
corporate bonds. Lower yields on these bonds result in higher
liabilities. "We have not been surprised by the steady decline
since March in the long Aa corporate bond yield. The calming of the
markets combined with the very attractive corporate bond nominal
yields have resulted in significant demand for high quality bonds,"
Austin said. "Much of this demand is generated by corporate pension
plan sponsors, who are seeking to better manage funding risk and
reduce financial statement volatility. As spreads between corporate
bonds and Treasuries approach more historical levels, pension plans
must weigh the merits of adopting a defensive posture that would
limit the impact of further declines in these yields against a
strategy of increasing their allocations to equities in the hope of
improving their funding ratios." Notes to Editors: BNY Mellon Asset
Management is the umbrella organization for The Bank of New York
Mellon Corporation's affiliated investment management firms and
global distribution companies. BNY Mellon is the corporate brand of
The Bank of New York Mellon Corporation. BNY Mellon is a global
financial services company focused on helping clients manage and
service their financial assets, operating in 34 countries and
serving more than 100 markets. The company is a leading provider of
financial services for institutions, corporations and
high-net-worth individuals, providing superior asset management and
wealth management, asset servicing, issuer services, clearing
services and treasury services through a worldwide client-focused
team. It has $20.7 trillion in assets under custody and
administration, $926 billion in assets under management, services
$11.8 trillion in outstanding debt, and processes global payments
averaging $1.8 trillion per day. Additional information is
available at bnymellon.com. DATASOURCE: BNY Mellon Asset Management
CONTACT: Mike Dunn, +1-212-922-7859, Web Site:
http://www.bnymellon.com/
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