Thanks to record low Aa corporate discount bond rates and declines in domestic and international stocks, U.S. corporate pension plans saw their funding status dip more than 5.6 percentage points, to 71.3%, in August, according to BNY Mellon Asset Management.
The drop more than erased July's 2.9-percentage-point rise, to 76.9%.
The investment management arm of Bank of New York Mellon Corp. said assets declined and liabilities rose due to the slumping global stock markets, where U.S. equities and international stocks dropped 4.7% and 3.1%, respectively.
Meanwhile, Aa corporate rates dropped from 5.29% to 4.29%, the lowest posting in "at least 30 years," BNY Mellon said Wednesday.
"August was one of the worst months of 2010 for corporate pension plans as they were hit by sharply rising liabilities as well as declining assets," said Peter Austin, the executive director of BNY Mellon Asset Management's pension services arm. "While corporate spreads increased, the dramatic decline in Treasury yields, reflecting a flight to quality, pushed nominal corporate interest rates to historic levels."
In March, pension plans reported their best funding status since October 2008, when they hit 88.1%.