The large decline in equity markets and lower interest rates conspired to bring the funded status of the typical U.S. corporate pension plan to 69.8 percent in May, its lowest level since December 2007.
In its monthly survey of pensions, BNY Mellon said that market forces drove pension liabilities higher and erased 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 percent as U.S. equity markets declined 6.2 percent and international developed markets dropped 11.5 percent on uncertainty regarding the Greek debt and related euro zone issues, according to the BNY Mellon report.
Liabilities rose 5.1 percent as the Aa Corporate discount rate fell 31 basis points during the month to a record low of 3.98 percent. 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 solution to the debt issues, just as they did in 2011," said Jeffrey B. Saef, managing director, BNY Mellon Asset Management, and head of the BNY Mellon Investment Strategy & Solutions Group (a division of The Bank of New York Mellon). "Until investors have more clarity, we are likely to see continuing weak equity markets and low interest rates."
BNY Mellon Investment Management is one of the world's leading investment management organizations and one of the top U.S. wealth managers, with $1.3 trillion in assets under management.
BNY Mellon is a global financial services company that helps clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets.