Funding Status of U.S. Pensions Tops 85 Percent at End of 2009, According to BNY Mellon Asset Management

Funding Status of Typical Corporate Plan Reaches Best Level of Year

Jan 06, 2010, 07:46 ET from BNY Mellon

BOSTON, Jan. 6 /PRNewswire-FirstCall/ -- Propelled by rising stocks and an increase in the yields of long Aa corporate bonds, the funded status of the typical U.S. corporate pension plan in December increased 3.0 percentage points to 85.5 percent, the best funding ratio during the entire year, according to monthly figures published by BNY Mellon Asset Management.

Assets for the typical U.S. corporate pension plan rose 0.9 percent and liabilities declined 2.6 percent for the month, as reported by the BNY Mellon Pension Summary Report for December 2009. For the year through December 31, 2009, BNY Mellon reports the funding ratio for the typical U.S. corporate pension plan is up 11.6 percentage points.

"On average, U.S. corporate pension plans have improved their funding status during five of the last six months of 2009 as equity markets in the U.S. and around the world rallied," said Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management. "But the bigger impact on funded status during the month of December was the 25 basis-point increase in the Aa corporate bond discount rate, which is at its highest level since June. As we enter 2010, we are keeping a close watch on the spread between Treasuries and the long Aa curve, which is at its tightest since June 2007. The volatility of Treasury yields, which moved up nearly 50 basis points in December alone, will clearly impact the Aa corporate bond discount rate in the new year."

Plan liabilities are calculated using the yields of long-term investment grade corporate bonds. Higher yields on these bonds result in lower liabilities.

"Many pension plan sponsors are breathing a sigh of relief over the dramatic improvement in funded status realized during 2009," said Austin. "But that improvement came at a cost of tremendous volatility. We expect that many plans will give serious consideration in early 2010 to risk-reduction programs, including liability driven investing (LDI) strategies, to dampen the impact of expected future volatility."

Notes to Editors:

BNY Mellon Asset Management is the umbrella organization for BNY Mellon's affiliated investment management firms and global distribution companies.

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All information source BNY Mellon Asset Management as of September 30, 2009, except where noted. This press release is issued by BNY Mellon Asset Management to members of the financial press and media and the information contained herein should not be construed as investment advice. Past performance is not a guide to future performance.