Funded status of U.S. pensions improves

Two reports from the United States show that the funded status of American DB plans improved in the second quarter.

The funded status of the typical U.S. corporate pension plan increased 3.1 percentage points in June 2013 to 89.5%, according to the BNY Mellon Investment Strategy & Solutions Group (ISSG). Year to date, the funded ratio is up 13.2 percentage points, the ISSG said.

The improvement was driven for the second month in a row by a jump in the Aa corporate discount rate, which drove liabilities sharply lower.

Liabilities for the typical corporate plan fell 5% as the discount rate on the Aa corporate bonds increased 39 basis points to 4.69%.

Assets for the typical corporate plan fell 1.6% as U.S. equity markets had their first losing month in 2013.

“Investors are growing more confident that the U.S. Federal Reserve is getting ready to taper its easing policies, and this is resulting in higher interest rates, which benefit plans,” says Jeffrey B. Saef, managing director of BNY Mellon Investment Management and head of the ISSG.

“While assets fell slightly in June, the big decline in liabilities more than compensated for the fall in equity values, leading to the improvement in funded status.”

Meanwhile, UBS Global Asset Management says the funding ratio of the typical U.S. pension plan increased sharply during the second quarter of 2013, rising by six percentage points to 88%.

Combined with gains in the first quarter, the estimated year-to-date total improvement in the funding ratio is close to 11 percentage points.

The improvement in funding ratio for the second quarter was driven primarily by a 6.1% drop in liability values. Asset values are estimated to have increased by a modest 0.4%.

The S&P 500 Total Return Index finished the quarter up 2.9%, and the MSCI EAFE Index rose approximately 1.5%.

Overall, the yield on 10-year U.S. Treasury bonds increased by 64 basis points, ending at 2.49%, while the yield on 30-year U.S. Treasury bonds increased by 40 basis points, ending at 3.50%.

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