The funded status of the average U.S. corporate pension plan increased by only 0.1 percentage point to 79.2 percent in July, according to an analysis by BNY Mellon Asset Management.
“July’s stock market euphoria has not translated into pension funded status gains,” Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management, said in a news release. “While U.S. stocks returned nearly 8 percent and international stocks were up more than 9 percent in July, these big gains were only enough to offset the rise in liabilities that plans face. This rise in liabilities was due to the decline in the discount rate on AA corporate bonds to 5.88 percent from 6.28 percent at the end of June.”
Pension plan managers now must decide whether to position their portfolios for gains in equity markets or take a defensive position against the increase in liabilities, Austin said in the release.
“A majority of corporate pension plans continue to be underfunded,” Austin said in the release. “A continuing equity rally would lower the contributions that companies would need to make to their pension plans to achieve full funding. However, declining stock markets or a further drop in bond yields would put increasing pressure on the plans.”