Funding Status of U.S. Pensions Drops to 71.3 Percent, According to BNY Mellon Asset Management

BOSTON, Sept. 8 /PRNewswire-FirstCall/ -- Slumping stock markets and a decline in the discount rate for Aa corporate bonds in August combined to send the funded status of the typical U.S. corporate pension plan down 5.6 percentage points to 71.3 percent, the lowest funding level since BNY Mellon Asset Management began tracking this data in 2006.

For the month of August, assets for the typical plan fell 2.1 percent while liabilities increased 5.5 percent, according to the BNY Mellon statistics.

Weakening consumer confidence and concerns over a slowing economic recovery contributed to a 4.7 percent fall in U.S. equities, with international stocks dropping 3.1 percent, according to the BNY Mellon Pension Summary Report for August 2010.  The report states that the Aa corporate discount rate fell from 5.29 percent at the end of July to 4.92 percent at the end of August, its lowest level in at least 30 years.

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

"August was one of the worst months of 2010 for corporate pension plans as they were hit by sharply rising liabilities as well as declining assets," said Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management.  "While corporate spreads increased, the dramatic decline in Treasury yields, reflecting a flight to quality, pushed nominal corporate interest rates to historic levels.  Since March, pension funds have had little to cheer about, as the funded status for the typical corporate plan has fallen more than 14 percentage points."

Austin added that the downward trend in funding status and high market volatility are motivating an increasing number of U.S. corporate pension plans to take steps to limit swings in funding status.  He said, "Many plan sponsors are loath to shift significant assets to fixed income via liability-driven investing (LDI) strategies, as they are hoping to recover their funded status through equity returns.  Despite this, there is a clear trend toward the establishment of programs that incorporate contribution and asset allocation targets to achieve desired plan funding levels with less volatility."

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 $21.8 trillion in assets under custody and administration and $1.0 trillion in assets under management, services $11.6 trillion in outstanding debt and processes global payments averaging $1.5 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available at www.bnymellon.com.

All information source BNY Mellon Asset Management as of June 30, 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.

A BNY Mellon Company(SM)

SOURCE BNY Mellon

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