Rise in Liabilities Outpaces Asset Growth

NEW YORK, May 3, 2013 — The funded status of the typical U.S. corporate pension plan fell 1.8 percentage points in April 2013 to 80.8 percent as liabilities posted their sharpest gains of the year, according to the BNY Mellon Investment Strategy & Solutions Group (ISSG). Year to date, the funded ratio is up 4.5 percentage points, ISSG said.

Liabilities for the typical corporate plan rose 4.0 percent, which ISSG attributed to a decline in Aa corporate bond yields.  Those yields declined 25 basis points to 3.84 percent. Plan liabilities are calculated using the yields of long-term investment grade bonds.  Lower yields on these bonds result in higher liabilities.

Assets for the typical corporate plan increased 1.7 percent as equity markets rallied in reaction to diminishing concerns regarding the Cyprus banking situation, according to the BNY Mellon Pension Summary Report for April 2013.

"Interest rates fell as investors expect the Federal Reserve will affirm its commitment to bond purchases in its efforts to spur the economy," said Jeffrey B. Saef, managing director, BNY Mellon Investment Management, and head of the ISSG. "Pension plans continue to feel the effect of the Fed's quantitative easing program, as the growth in liabilities more than doubled the growth in assets during April."

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

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