Equities Fashion Funding Gains for Corporate Pensions

Since August, the funding status for the typical U.S. corporate pension plan has posted a more than 13 percentage point improvement, marking the largest four-month positive swing for the BNY Mellon Pension Summary Report since it was created in 2006.

In today’s announcement, Peter Austin, executive director of BNY Mellon Pension Services, explained that “the driver of this improvement was U.S. equities, which posted returns in excess of 15% during this same period.” He also noted that a “51-basis point increase in the Aa corporate discount rate was an important, but secondary, contributor.”

However, the month-by-month turnover for the corporate retirement plans showed funding ratios jumped 3.8% to 84.3%, the December pension report listed. Previously, in November, funding status hit 80.5%, BNY Mellon Asset Management said previously.

As a reflection, in October, the BNY Mellon investment management arm, which as of Sept. 30 was managing $1.14 trillion in assets, explained that September’s pension performance marked “the strongest one-month gains this year.” At the time, funding status was brought up to 75.9% from August’s posting of 71.3%. Alternately, in July, plans reported a funding status of 76.9%, and in June; the level was 74%.

For the most recent period, assets for corporates’ increased thanks to a 6.8% increase in U.S. equities, and a 8.1% bump up for international stocks, this according to the money management subsidiary’s study.

The Jan. 5 summary also noted that liabilities fell 0.9% due to Aa corporate discount rate increase from 5.32% to 5.43%.

Furthermore, Austin highlighted in his comments that December’s number are the best since March 2010; they also surpassed December 2009’s 83.5% plateau, he said.

“It is unlikely that many sponsors in August expected to end the year with better funding than at the end of 2009,” Austin stated Wednesday. “We expect U.S. plan sponsors to continue efforts to closely manage plan funding volatility. In particular, we believe adoption rates for risk reduction programs based on target funding levels will increase, especially in the presence of higher interest rates and strong equity returns."