Falling stock markets in May sent pension plan assets lower, resulting in the worst funded status for the typical U.S. corporate pension plan since October 2009, according to BNY Mellon Asset Management.
The funded status in May declined 4.3 percentage points to 82%. Through the end of May, the funded status of the typical U.S. corporate plan is down 3.5 percentage points for the year.
The falling stock markets resulted in a decline of 4.8% in assets at the typical U.S. corporate plan, while liabilities were little changed in May, rising 0.3%, as reported by the BNY Mellon Pension Summary Report for May 2010.
“U.S. stocks in May had their worst month since February 2009, declining nearly 8%, while a weakening euro helped to send international stocks down more than 11%," said Peter Austin, executive director of BNY Mellon Pension Services. “May's results wiped out equity gains on a year-to-date basis. Unfortunately, there was no relief on the liability side as the Aa corporate discount rate remained essentially flat despite a 30-basis-point widening of spreads to Treasuries.”
Austin added that continuing fears over the European sovereign debt crisis and the fragility of the global economic recovery are likely to result in increased market volatility for the near term.
"In response to this expected volatility, we are hearing from a growing number of corporations that are seeking new solutions to manage financial risks posed by their pension plans," he said. "There appears to be growing interest for funding strategies that seek to establish deadlines to achieve and maintain specific funding levels, with the goal of providing a buffer against wide swings in either the equity markets or in interest rates.”