Pension funding ratios at public and private U.S. defined benefit plans slipped 0.3 percentage points in September, according to a report from New York-based BNY Mellon Asset Management, as liabilities decreased almost the same amount as the assets of a typical U.S. pension plan with a moderate-risk portfolio, spokesman Mike Dunn said.
Pension funding ratios for public and private plans have declined 4.3% year to date, Mr. Dunn added.
According to the report, the drop in funding was caused by a 75-basis-point widening in high-grade corporate yield spreads, which helped to drive typical pension liabilities 6.4 percentage points lower, while the value of the assets in a moderate-risk portfolio decreased 6.7 percentage points in September.
Separately, UBS Global Asset Management, Chicago, estimated that funding ratios for U.S. defined benefit plans fell seven percentage points in the third quarter, to 101%. UBS attributed the decline to volatile equity markets that were down at the end of the quarter and slightly higher corporate bond yields brought on by falling interest rates.
Adrian Hartshorn, a member of Mercer LLC's financial strategy group in New York, said if the spread between U.S. Treasuries and high-grade corporate bond yields used to calculate the present value of their future liabilities hadn't widened this year, the decline would have been more dramatic.
With those corporate bond yields 3.3 percentage points above the yield on Treasuries at the end of September, Mercer said the combined funded status of the S&P 1500 companies slipped to 97%, and a deficit of $35 billion, from 104%, and a surplus of $60 billion as of Dec. 31, 2007.
If the spread of corporate bonds over Treasuries had been in the 1- to 1.5-percentage-point range that prevailed between 2003 and 2007, with no corresponding rally in the stock market, funded status would have tumbled to 77%, with a deficit of more than $400 billion, Mr. Hartshorn said.
