Pension funding ratios slip again in October

PITTSBURGH - The worst month for stocks in more than 20 years sent funding ratios for the typical U.S. corporate pension plan down 3.7 percentage points, according to BNY Mellon Asset Management.

Year to date, funding ratios for typical plans have declined approximately 7.7 percent.

A funding ratio is the difference between what a pension plan is obligated to pay out and the assets it holds.

"Renewed recession fears weakened an already fragile market, as 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.

A 76-basis-point widening in high-grade corporate yield spreads helped to drive typical pension liabilities 7.3 percent lower.

"This was the largest decline in funded status for a single month since we started tracking pension funding in March 2005," Austin added. "The picture would have been worse if equities hadn't rallied during the last week of October. We are watching corporate spreads very closely as they remain near all-time levels. 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. Plan sponsors need to be vigilant in monitoring their pension funding as we expect more volatility in the near term."

BNY Mellon Asset Management has more than $1 trillion in assets under management, making it one of the world's largest asset managers.

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