U.S. Corporate Pension Funding Rises to 88.5%

(July 13, 2011) – The average U.S. corporate pension plan’s funded status rose 0.8% in June to 88.5% as dropping liabilities outstripped falling asset levels, BNY Mellon Asset Management has said in a release.

Assets for the typical plan fell 1.1%, owing to anemic returns from U.S. and global equities, while the typical plan’s liabilities dropped 2.1%, as the Aa corporate discount rate increased 19 basis points to 5.53% from 5.34%. As the yields on these corporate bonds increase, the typical plan’s liabilities correspondingly decrease.

“The June results reversed some of the losses that pension funds sustained in May,” Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management, said in the release. “However, the volatility in equity returns in recent months reflects the fragility of the global markets. The risk of further deterioration in asset values complicates the decision-making of plan sponsors.”

Plan sponsors have two options going forward, Austin said. They can either lock in the improvements in pension funding level since the August 2010 trough when funding level plummeted to 70.1% or they can adopt a more aggressive asset allocation to further increase their plan’s funding status.

U.S. corporate funding levels have ebbed and flowed since the August 2010 nadir. In February, funding levels rose to 88% but faltered in the subsequent months as equities tumbled.