So, the good news out of BNY Mellon Asset Management today is that corporate pension plans this past month were more fully funded then the month before. The bad news is that they remain significantly underfunded and what really helped the funding status in the most recent month was a rising stock market and a tool plans use to measure their liabilities.
In September, the funded status of pension plans stood at 75.9%. That means that if the plans had to liquidate today, retirees would receive basically 3/4 of what they were promised. What helped move this number up 4.6 percentage points was a buoyant stock market, that was up around 9.4% in the U.S. and about 9.8% internationally.
Pension funds determine their liabilities by using a discount rate – which is the aa corporate rate. They try to figure out their future obligations and use this discount rate to figure out the present value. The higher the discount rate, the less money a pension fund owes. So, discount rate assumptions by companies make a difference. And they generally happened to increase their assumptions by six basis points to 4.98%.
We’ll need a very significant increase in hte stock markets and much better corporate earnings to get these plans back to much higher funded levels.