Continuing Equity Rally and Higher Rates Drive Funding Status Higher

BOSTON, November 3, 2010 — A second straight month of strong equity returns combined with declining liabilities drove the funded status for the typical U.S. corporate pension plan 4.4 percentage points higher to 80.3 percent, the best status since May 31, 2010, according to monthly statistics published by BNY Mellon Asset Management.

Assets for the typical plan rose 2.5 percent in October, as U.S. equity markets increased 3.9 percent (Russell 3000 Index) and international stocks rose 3.6 percent (MSCI-EAFE Index), according to the BNY Mellon Pension Summary Report for October 2010.  The increase in the Aa corporate discount rate to 5.23 percent from 4.98 percent resulted in a 3.2 percent decline in the typical plan's liabilities, the report said.

Plan liabilities are calculated using the yields of long-term investment grade corporate bonds.  Higher yields on these bonds result in lower liabilities.

"Back-to-back months of strong equity performance and a rising discount rate have provided much needed relief to U.S. corporate pension plans," said Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management.  "Over the last two months the typical plan has experienced a nine percentage-point improvement in funded status, which is significant. But we should keep in mind that we were working off the lowest funded status recorded since we started reporting in 2005, and overall funding remains historically low at just above 80 percent."  

Austin added, "Pension plan funding volatility remains high, evidenced by the average monthly percentage point-change in funded status of 4.6 percent over the last six months. As a result, plan sponsors are increasingly interested in developing comprehensive programs designed to better manage the impact of pension plan funding volatility. Of particular interest are programs that target a specific funding level by a certain date, with built-in flexibility to dynamically manage asset allocation based on market factors. We see demand for these target-based programs increasing given weak economic activity and the expected continuation of low interest rates."

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

All information source BNY Mellon Asset Management as of September 30, 2010. This press release is qualified for issuance in the US only and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorized. This press release is issued by BNY Mellon Asset Management to members of the financial press and media and the information contained herein should not be construed as investment advice.  Past performance is not a guide to future performance.
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