Funding Status of Typical Corporate Plan Nears 80 Percent

BOSTON, September 3, 2009 — 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."

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.