Liabilities Rise Faster than Assets

NEW YORK, March 5, 2013 — The funded status of the typical U.S. corporate pension plan slid 0.5 percentage points to 80.7 percent in February as a decline in interest rates drove liabilities higher, according to the BNY Mellon Investment Strategy and Solutions Group (ISSG).  Year to date, the funded ratio has risen 4.4 percentage points, BNY Mellon ISSG said.

Liabilities for the typical corporate plan increased 1.4 percent in February, outpacing the 0.8 percent gain in assets during the month, according to the BNY Mellon Pension Summary Report for February 2012.  The report attributed the gain in liabilities to the eight-basis-point decline in the Aa corporate discount rate to 4.05 percent.

Plan liabilities are calculated using the yields of long-term investment grade bonds.  Lower yields on these bonds result in higher liabilities.

The positive asset returns were driven by the rising U.S. equity markets in February, although asset gains were limited by the slight fall in international developed markets during the month., the report said.

"Plan funding levels took a small step back in February following three strong months of improvements," said Jeffrey B. Saef, managing director, BNY Mellon Investment Management, and head of the ISSG.  "Political uncertainty regarding spending and revenue will likely keep funded status volatility elevated for the next several months."

The BNY Mellon Investment Strategy and Solutions Group is a division of The Bank of New York Mellon.

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