Funding Status of U.S. Pensions Falls to 74.0 Percent in June, According to BNY Mellon Asset Management

A combination of U.S. stock market declines and lower interest rates in June resulted in the lowest-funded status for the typical U.S. corporate pension plan since February 2009, according to monthly statistics published by BNY Mellon Asset Management.

The funded status in June declined 6.0 percentage points to 74.0 percent. Through the end of June, the funded status of the typical U.S. corporate plan is down 9.5 percentage points for the year.

The falling stock markets resulted in a decline of 2.3 percent in assets at the typical U.S. corporate plan, while liabilities sharply increased in June, rising 5.6 percent, as reported by the BNY Mellon Pension Summary Report for June 2010. Plan liabilities are calculated using the yields of long-term investment grade corporate bonds. Lower yields on these bonds result in higher liabilities.

"Investors' fears sent U.S. stocks down 5.7 percent in June, which followed the 7.9 percent fall in May," said Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management. "The second quarter decline of 11.3 percent in U.S. stocks was the worst quarterly performance since the fourth quarter of 2008."

The June rally in Treasuries led to a 39-basis-point drop in the Aa corporate discount rate to 5.34 percent, the lowest point since June 2005, according to BNY Mellon Asset Management.

"Pension plans experienced pressure from both the asset and liability side in June, and there doesn't appear to be a quick fix on the horizon," said Austin. "Poor asset returns and dropping interest rates are prompting both corporate and public sector plans to consider more active approaches to managing their funding strategies. Interest in Liability-Driven Investing (LDI) strategies remains high, with many sponsors adding objectives such as deadlines to reach specific target funding levels."

Notes to Editors:

BNY Mellon Asset Management is the umbrella organization for BNY Mellon's affiliated investment management firms and global distribution companies.

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