The funded status of a typical corporate defined benefit plan decreased 2.5 percentage points in July to 74%, primarily because of lower Treasury rates, according to BlackRock's monthly pension funding update.
Assets increased 2%, while liabilities increased 5.4%.
Lower Treasury rates caused funding ratios to decrease by 3.4 percentage points, and lower credit spreads caused a 0.3 percentage drop, according to BlackRock. A recovering equity market helped funding ratios increase by 1.2 percentage points.
“When we tend to see large increases or decreases in the funded ratio, it tends to be driven mostly by Treasury yields,” said Andy Hunt, managing director in BlackRock's multiasset client solutions group, in a telephone interview.
While equity returns and credit spreads often balance each other out, it's the low Treasury yields that cause the spike in liabilities. “That has happened time and time and time again,” Mr. Hunt said.
