May was a tough month for Canadian pension plans, but it may have been even tougher for plans south of the border.
According to BNY Mellon’s most recent pension summary report, the funded status of the typical U.S. corporate pension plan fell 6.5 percentage points in May, to 69.8 percent—that’s’ the lowest level since BNY Mellon began tracking this information in December 2007.
Read: Canadian pension plans pummelled in May
The decrease was driven by the worst monthly decline in U.S. equity markets in 2012 and lower interest rates, which sent liabilities higher, according to BNY Mellon. The report added that the two trends combined to erase all of the gains that had been recorded in the first quarter of 2012.
Assets for the moderate risk U.S. corporate pension plan in May fell 3.9% as U.S. equity markets declined 6.2% and international developed markets dropped 11.5% on uncertainty regarding the Greek debt and related eurozone issues, according to the report.
Liabilities rose 5.1% as the Aa Corporate discount rate fell 31 basis points during the month to a record low of 3.98%, BNY Mellon said. Plan liabilities are calculated using the yields of long-term investment grade corporate bonds. Lower yields on these bonds result in higher liabilities.
“After a strong first quarter, investors are again focusing on continuing weakness in European markets and lack of a coordinated long-term solutions to the debt issues, just as they did in 2011,” said Jeffrey B. Saef, managing director with BNY Mellon Asset Management, and head of BNY Mellon’s investment strategy and solutions group. “Until investors have more clarity, we are likely to see continuing weak equity markets and low interest rates.”