The funded status of U.S. pension plans declined 7% in November, according to data released last week.
The funding of the typical plan deteriorated 2.7% during the first 11 months of this year, according to the asset management unit of Bank of New York Mellon Corp. that tracks how pension plans are funded through its proprietary BNY Mellon Pension Liability Indexes.
Assets in the average moderate-risk pension portfolio shrank 1.9% in November, while liabilities grew 5.1%.
For the year through Nov. 30, moderate-risk-portfolio assets were up 7.1% and typical pension liabilities increased 9.8%.
Peter Austin, the executive director of BNY Mellon Asset Management's pension services unit, said that plunging global equity markets combined with declining yields on long-term Treasury bonds drove down pension plan asset values in November.
"The decline in equities pared the assets held by the typical U.S. pension plan," he said in a press release. "At the same time, flight to quality, recession fears, and expectations of a Fed easing brought about a large decline in interest rates in November. The lower interest rates increase pension plan liabilities and the value of bonds."
Long-maturity Treasury bond yields dropped 35 basis points in November, Mr. Austin said.
He also said that two-year yields fell 91 basis points. "Corporate bonds did not fare well as worries over credit risk caused yield spreads to widen by more than 40 basis points," he said.
BNY Mellon Asset Management, which is based in Pittsburgh and announced the monthly data on Friday, has more than $1 trillion of assets under management. The company offers a suite of beta-achieving and alpha-generating investment strategies for institutional investors.
Several of the largest public pension funds have been selling their stakes in equities, and others are expected to participate in this growing trend.
In most cases these actions are unrelated to market conditions, though worries about the economy, the weakening dollar, and the credit crisis could be accelerating the moves.
Reducing stock holdings in domestic companies is part of a long-term plan to help fund other investment offerings.
Large corporate pension plans including the New York State Teachers' Retirement System, the New York State Common Retirement Fund, the Teacher Retirement System of Texas, and the Florida Retirement System Pension Plan are participating in the trend.
Collectively, these plans control more than $566.3 billion of pension assets.
Another large plan, the California Public Employees' Retirement System may reduce its domestic stock allocation from 40% of its portfolio to 24%.
Some pension funds are increasing their positions in international stocks, and others are increasing their commitment to alternative investments, such as hedge funds or private equity investments, or long-maturity bonds.
