May 6, 2011

Rising Equities Lift Corporate Pensions in April: BNY Mellon

Increase in assets outpace smaller increase in liabilities

Funded status of U.S. corporate pensions increased slightly in April to 89.2%, an increase of 0.7 percentage points, BNY Mellon Asset Management found. This is the eighth consecutive month of improvement.

The funding ratio has improved by nearly 5 percentage points since the beginning of the year.

Funded status improved due to rising stock markets raising assets by 2.6% over a 1.8% increase in liabilities. U.S. equities returned 3% to investors, while international developed markets improved 6%, according to the BNY Mellon Pension Summary for April 2011.

BNY Mellon attributed the liability increase to the decline in the Aa corporate discount rate to 5.5% from 5.6%. The Treasury discount rate fell 12 basis points to 4.3%.

"Plan sponsors are becoming increasingly optimistic as funding levels improve, putting them in a better position to make strategic decisions about current and future asset allocations," Peter Austin, executive director of BNY Mellon Pension Services, said in a press release.  

Plan sponsors are increasingly evaluating ways to further improve their funded status through return-seeking assets, such as alternatives and equities, without sacrificing the funding gains they've enjoyed since August 2010, Austin added.

"The question most frequently asked is whether now is the time to increase the liability hedge given interest rate trends," he said.

By comparison, a Pew Center on the States report in April found pensions for public service workers faced a $1.26 trillion shortfall.

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