The falling stock markets resulted in a decline of 2.3 percent in assets at the typical U.S. corporate plan, while liabilities sharply increased in June, rising 5.6 percent, as reported by the BNY Mellon Pension Summary Report for June 2010. Plan liabilities are calculated using the yields of long-term investment grade corporate bonds. Lower yields on these bonds result in higher liabilities.
"Investors' fears sent U.S. stocks down 5.7 percent in June, which followed the 7.9 percent fall in May," said Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management. "The second quarter decline of 11.3 percent in U.S. stocks was the worst quarterly performance since the fourth quarter of 2008."
The June rally in Treasuries led to a 39-basis-point drop in the Aa corporate discount rate to 5.34 percent, the lowest point since June 2005, according to BNY Mellon Asset Management.
"Pension plans experienced pressure from both the asset and liability side in June, and there doesn't appear to be a quick fix on the horizon," said Austin. "Poor asset returns and dropping interest rates are prompting both corporate and public sector plans to consider more active approaches to managing their funding strategies. Interest in Liability-Driven Investing (LDI) strategies remains high, with many sponsors adding objectives such as deadlines to reach specific target funding levels."
