The funded status of U.S. pensions fell to 72.4 percent in December, according to the BNY Mellon Pension Summary Report for December 2011. The drop was a result of a sharp increase in liabilities.
The decline in funded status was the second-largest calendar year decline since BNY Mellon began tracking this data in 2005. The large decline in 2011 was due to the liability discount rate reaching a new historic low, 4.36 percent, surpassing the record set in September 2011, according to the report. BNY Mellon noted that assets for the typical plan did increase 2.7 percent in 2011, but liabilities increased much faster, 20 percent, to send funding levels lower for the year.
The plan assets increased as a result of a slight gain in U.S. equity markets, BNY Mellon said.
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Plan liabilities are calculated using the yields of long-term investment grade corporate bonds. Lower yields on these bonds result in higher liabilities.
"The continuing uncertainty regarding the prospects for a U.S. economic recovery and the ongoing European debt crisis drove investors back into bonds during December, which sent interest rates lower," said Jeffrey B. Saef, managing director of BNY Mellon Asset Management and head of the Investment Strategy & Solutions Group (a division of The Bank of New York Mellon). "We expect continuing volatility until investors believe the recovery in the U.S. is sustainable and some resolution is reached in Europe."
BNY Mellon Asset Management is one of the world's leading asset management organizations, encompassing 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.
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