US - The funded status of US pension plans has plummeted due to current market conditions, according to BNY Mellon Asset Management.
A slumping stock market and a sharp drop in interest rates in July caused a decline of 4.4 percentage points in the funded status of a typical US pension plan, explained BNY Mellon Asset Management, which tracks the health of US pension plans through its BNY Mellon Pension Liability Indexes.
Peter Austin, executive director of BNY Mellon pension services, said: “Stocks had their worst month in three years, dropping more than 3%. At the same time, long treasury bond yields declined 22 basis points, significantly increasing the value of pension liabilities.”
BNY Mellon Asset Management found the assets of a moderate risk pension portfolio fell 1.5% in July, while the value of typical pension liabilities rose 2.9%.
For the year to date, moderate risk assets were up 3.4% while typical pension liabilities rose by 0.5%. This is because lower interest rates increase liabilities and the value of bonds, said the firm.
It added that unexpected changes in a plan’s demographics, among other factors, also affect the size of the benefit liability.
The figures from BNY Mellon Asset Management comes after recent pension data from Mercer found the funded status of pension plans among companies in the S&P 500, increased to 89% in 2006, from 83% in 2005.
The analysis from Mercer Human Resource Consulting and Mercer Investment Consulting showed the improved funded status of pension plans lessened the impact of the switch to new accounting rules, which require full balance sheet recognition of plan deficits.
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