The funded status of the typical U.S. corporate pension planfell 2.3 percentage points in May to 86.9 percent, erasing nearlyhalf of the gains achieved since the beginning of the year andending an eight-month period of steady improvement, according tomonthly statistics published by BNY Mellon Asset Management.

"The sudden reversal in May reflected the impact of lowerTreasury yields as investor concern grew regarding the Europeansovereign debt situation," said Peter Austin, executive director ofBNY Mellon Pension Services in a statement. "We have experienced avery good run in funded status improvement since August 2010, andmany plan sponsors were turning their attention to establishingasset allocation targets based on continued improvement in planfunding levels."

The decline in the funded ratio was driven by falling interestrates, as the Aa corporate discount rate dropped 16 basis points to5.34 percent, according to the BNY Mellon Pension Summary Reportfor May 2011. Plan liabilities are calculated using the yields oflong-term investment grade corporate bonds. Lower yields onthese bonds result in higher liabilities.

In addition, assets in the typical corporate plan in May fell0.3 percent, as the U.S. equity markets lost 1.1 percent andinternational developed stock markets dipped 3.0 percent, accordingto the report.

Austin said that the results show that the U.S. still facesserious economic challenges such as inflation. As a result, manyplan sponsors may revisit their asset allocation strategies to determine how toprotect the gains made over the past several months.