Corporate Pension Plan Assets Plummeted in May, BNY Reports

Worst funded status for corporate pension plans since October

Monthly statistics published by BNY Mellon Asset Management released Friday, June 4, found that plunging stock markets in May sent pension plan assets falling, resulting in what BNY Mellon said was worst funded status for the typical U.S. corporate pension plan since October 2009.

The funded status in May declined 4.3% to 82.0%, BNY Mellon reports, and through the end of May, the funded status of the typical U.S. corporate plan is down 3.5% for the year.

"U.S. stocks in May had their worst month since February 2009, declining nearly 8%, while a weakening euro helped to send international stocks down more than 11%," said Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management, in a statement. "May's results wiped out equity gains on a year-to-date basis. Unfortunately, there was no relief on the liability side as the AA corporate discount rate remained essentially flat despite a 30-basis-point widening of spreads to Treasuries."

The falling stock markets resulted in a decline of 4.8% in assets at the typical U.S. corporate plan, while liabilities were little changed in May, rising 0.3%, as reported by the BNY Mellon Pension Summary Report for May 2010. As BNY explains, plan liabilities are calculated using the yields of long-term investment grade corporate bonds. Lower yields on these bonds result in higher liabilities.

Austin added that the May 6 U. S. market flash crash "reminds us that the equity markets remain very sensitive. Continuing fears over the European sovereign debt crisis and the fragility of the global economic recovery are likely to result in increased market volatility for the near term. In response to this expected volatility, we are hearing from a growing number of corporations that are seeking new solutions to manage financial risks posed by their pension plans. There appears to be growing interest for funding strategies that seek to establish deadlines to achieve and maintain specific funding levels, with the goal of providing a buffer against wide swings in either the equity markets or in interest rates."

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