By Colin Barr
June 4, 2010

May’s stock market selloff was predictably unhelpful for retirement savers.

The market decline wiped more than 4 percentage points off the typical corporate pension plan’s funding status, Bank of New York Mellon said. The decline leaves the average program 82% funded – its lowest level since last October.

As recently as March, when stocks were still rising and credit spreads were tightening, pensions were 88% funded, the company said.

“May’s results wiped out equity gains on a year-to-date basis,” said Peter Austin, executive director of BNY Mellon Pension Services, which produces the monthly pension summary report. The BNY data tracks the performance of a “moderate risk portfolio” comprising half domestic stocks, 10% foreign stocks and 40% bonds.

The decline comes at a time when depressingly huge numbers of Americans have next to no retirement savings of their own and are counting on Social Security and employer payouts to carry them through retirement.

U.S. stocks lost 8% last month and international stocks 11%, thanks to global debt fears and a weakening euro. Those declines reduced the value of the typical pension plan’s assets by 4.8%, BNY Mellon said.

At the same time, the plans’ liabilities actually rose 0.3% in May. That’s because the Greek-inspired flight to safety drove down the yield on benchmark Treasury bonds, while leaving the double-A corporate bond discount rate – which is used to calculate the present value of future pension payouts – unchanged.

Despite the recent setback, the stock market rally has left pension plans better funded than they were at depths of the banking panic in February 2009. At the end of that month, the average plan was just 73% funded, according to Bank of New York Mellon data.

The volatility in plan funding levels over the past two years and the prospect for more of the same ahead have fund managers trying to find an answer, the company said.

Austin spoke of “growing interest for funding strategies that seek to establish deadlines to achieve and maintain specific funding levels, with the goal of providing a buffer against wide swings in either the equity markets or in interest rates.”

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