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The Markets July 2, 2014
Corporate Pension Liabilities Declined in June
The funded status of corporate defined benefit (DB) plans in the United States increased to 92% during June, with liabilities decreasing 0.2% during the month.
Reported by Kevin McGuinness
A recent analysis by the BNY Mellon Investment Strategy and Solutions Group (ISSG) shows that the funded status of the typical U.S. corporate pension plan increased 1.4 percentage points in June, driven by rising asset values.
The BNY Mellon Institutional Scorecard for June notes assets at the typical corporate plan rose 1.4%. Year to date, the funded status of corporate plans is down 3.2 percentage points, according to the scorecard.
“Corporate plans also benefited from a slight rise in interest rates, which reduced liabilities,” says Andrew D. Wozniak, head of fiduciary solutions, ISSG, based in New York. “June ended a string of three consecutive months of falling rates, which had been driving liabilities higher.
“Equities have continued rallying since April as economic data appears to indicate strengthening global growth,” Wozniak adds. “If the funded status continues to rise, we expect more plans to implement strategies that better insulate them from future market volatility.”
The decrease in liabilities for corporate plans in June was due mainly to a four-basis-point increase in the Aa corporate discount rate, which reached 4.32%. Plan liabilities are calculated using the yields of long-term investment grade bonds. Higher yields on these bonds result in lower liabilities.
The BNY Mellon Investment Strategy and Solutions Group is a division of The Bank of New York Mellon.