Stock Market Rallies Drive U.S Pensions Higher

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Sixth month of improvement as plans benefit from equity rally

U.S. corporate pension plans in February continued to benefit from the global stock market rally, as the funded status of the typical corporate plan rose 0.4 percentage points to 88.0 percent, according to monthly statistics published by BNY Mellon Asset Management.

This is the sixth consecutive month of improvement, boosting the funded status for these pension plans to their best levels since October 2008, according to the BNY Mellon Pension Summary Report for February 2011. So far this year, the funded ratio for the typical corporate plan has improved 3.7 percentage points.

In February, assets for the typical corporate pension plan rose 2.3 percent, due to a 3.6 percent improvement in U.S. equities and a 3.3 percent gain in international stocks, according to the report.  Liabilities increased 1.7 percent during the month as the Aa corporate discount rate fell 10 basis points to 5.54 percent from 5.64 percent.

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

“U.S. corporate pension plans have seen a steady stream of good news since August 2010, when the funded status of these plans was hovering slightly above 70 percent,” said Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management.  “This rapid improvement in funded status has prompted a growing number of pension sponsors to reassess their asset allocation strategies.”

One approach includes reductions in plan funding volatility through higher allocations to fixed income and/or interest rate risk hedging programs, he said.  He noted that another approach is continued reliance on return-seeking asset classes, such as equities and alternatives, to drive funding improvement. Regardless of the path taken, Austin said plan sponsors remain acutely aware that pension plans incorporate risks that require constant monitoring and analysis.

Target funding strategies are also gaining traction as plan fiduciaries recognize the need to be prepared to make timely and informed decisions, such as further plan de-risking if interest rates increase and equity markets continue appreciating, he said, adding, “There is a universal desire among plan sponsors to avoid a return to the dark chapter of the past where funding levels deteriorate 15 to 20 percentage points.”

Notes to Editors:

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

BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, providing superior asset management and wealth management, asset servicing, issuer services, clearing services and treasury services through a worldwide client-focused team. It has $25.0 trillion in assets under custody and administration and $1.17 trillion in assets under management, services $12.0 trillion in outstanding debt and processes global payments averaging $1.6 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available at

All information source BNY Mellon Asset Management as of December 31, 2010. This press release is qualified for issuance in the US only and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorized. 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.

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