The funded status of the typical U.S. corporate pension plan rose 5.6 percentage points in May to 86.4 percent, the highest it has been since July 2011.
According to the BNY Mellon Investment Strategy & Solutions Group, the funded status is up 10.1 percentage points for the year because of a jump in the Aa corporate discount rate, which reduced liabilities.
Liabilities for the typical corporate plan fell 6.3 percent as the discount rate on the Aa corporate bonds increased 46 basis points to 4.3 percent, the sharpest rise in two years, the report said. Plan liabilities are calculated using the yields of long-term investment grade bonds. Higher yields on these bonds result in lower liabilities.
Assets held in corporate plans rose 0.2 percent as U.S. equity markets rose, the report found.
"Signs that the quantitative easing program will end coupled with rising consumer confidence are making bonds less attractive, which is sending interest rates higher," said Jeffrey Saef, managing director, BNY Mellon Investment Management, and head of the Investment Strategy & Solutions Group. "Corporate plans are in much better shape and expressing increasing interest in strategies that could protect them from future funded status volatility."
BNY Mellon Investment Management is an investment management organization with $1.4 trillion in assets under management.