Slumping stock markets and a decline in the discount rate for Aa corporate bonds in August combined to send the funded status of the typical U.S. corporate pension plan down 5.6 percentage points to 71.3 percent, the lowest funding level since BNY Mellon Asset Management began tracking this data in 2006.

For the month of August, assets for the typical plan fell 2.1 percent while liabilities increased 5.5 percent, according to the BNY Mellon statistics.

Weakening consumer confidence and concerns over a slowing economic recovery contributed to a 4.7 percent fall in U.S. equities, with international stocks dropping 3.1 percent, according to the BNY Mellon Pension Summary Report for August 2010. The report states that the Aa corporate discount rate fell from 5.29 percent at the end of July to 4.92 percent at the end of August, its lowest level in at least 30 years.

Plan liabilities are calculated using the yields of long-term investment grade corporate bonds. Lower yields on these bonds result in higher liabilities.

"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, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management. "While corporate spreads increased, the dramatic decline in Treasury yields, reflecting a flight to quality, pushed nominal corporate interest rates to historic levels. Since March, pension funds have had little to cheer about, as the funded status for the typical corporate plan has fallen more than 14 percentage points."

Austin added that the downward trend in funding status and high market volatility are motivating an increasing number of U.S. corporate pension plans to take steps to limit swings in funding status. He said, "Many plan sponsors are loath to shift significant assets to fixed income via liability-driven investing (LDI) strategies, as they are hoping to recover their funded status through equity returns. Despite this, there is a clear trend toward the establishment of programs that incorporate contribution and asset allocation targets to achieve desired plan funding levels with less volatility."