Retirement Plans

Pension Funding Takes Big October Hit

BNY Mellon numbers show 3.7-point fall for the typical U.S. corporate plan — and 7.7 year-to-date.
Stephen TaubNovember 6, 2008

Measurements of the global market selloff’s damage to traditional pension funds is beginning to register. Funding ratios at the typical U.S. corporate pension plan fell 3.7 percentage points in October as stocks had their worst month since 1987, according to BNY Mellon Asset Management.

Year-to-date funding ratios for typical plans have declined about 7.7 percent.

The value of the assets in a moderate-risk portfolio declined 11.8 percentage points in October,” said Peter Austin, executive director of BNY Mellon Pension Services.

The huge drop in asset values, however, was partially offset by a 7.3-percentage-point drop in typical plan liabilities, as the Pension Protection Act average discount rates rose 76 basis points, according to Austin. “This was the largest decline in funded status for a single month since we started tracking pension funding in March 2005,” he added.

Austin stressed that the picture would have been worse had equities not rallied during the last week of October. “We are watching corporate spreads very closely as they remain near all-time levels,” he said. “It is inevitable that corporate spreads will narrow. The critical question is whether equity values will keep pace with the expected increase in plan liabilities.”

In other pension news, The Pension Benefit Guaranty Corp. announced that the maximum insurance benefit for participants in underfunded pension plans terminating in 2009 is $54,000 per year for those who retire at age 65, up from $51,750 for 2008.

The amount is higher for those who retire later and lower for those who retire earlier or elect survivor benefits. For example, those who retire at 75 could receive as much as $164,160 while those who retire at 60 receive just $35,100.

If a pension plan terminates in 2009 but a participant does not begin collecting benefits until a future year, the 2009 maximum insurance limits still apply.

According to the PBGC, the overwhelming majority of the participants in plans taken over by the agency face no reduction in benefits due to the legal limits on coverage.