RedwoodAge.com

If you're wondering how Wall Street's June swoon affected your pension fund, wonder no more.

The worst stock performance in more than five years triggered a 4.8 percent decline in the funded status of US pension plans, according to BNY Mellon Asset Management, which manages more than $1 trillion in pension assets.

For moderate-risk portfolios, asset returns fell 5 percent while liabilities fell 0.2 percent, the firm said. On a year-to-date basis, funding ratios for typical pension plans have fallen 3.7 percent.

"Concerns about inflation, stagnant economic growth and write-offs all contributed to the stock market decline," said Peter Austin, executive director of the bank's pension services. "It is difficult to determine whether the resulting decline in liabilities will more than offset sluggish or non-existent gains in asset values."

That could have a long-term effect over the returns on the funds, which will be drawn down heavily as 78 millions boomers enter retirement with many collecting a pension. 

For boomers who aren't looking forward to pension, the news isn't much better. Because of better quality management, large pension funds typically earn more over time than self-directed retirement investment, like a 401(k).  For example, while a pension fund may make quick adjustments amid shifting market conditions, many individual investors often keep buying the same investments through pre-set payroll deductions.

That news came as the Securities and Exchange Commission blasted the three main credit rating agencies for conflicts of interest that affected their ratings for investments tied to risky subprime mortgages.

The ratings agencies  - Standard & Poor's, Moody's and Fitch - have since downgraded thousands of subprime-backed securities, which are widely held by pension funds, hedge funds. insurance companies and other large investors.

Paying for Ratings
In some cases, firms that issued the securities paid the ratings agencies that issued their ratings.

"Issues were identified in the management of conflicts of interest, and improvements can be made," the SEC said. The findings were based on a review of hundreds of thousands of documents reviewed by dozens of commission staff members.

The bond market is so vast that investors must rely on the ratings agencies so they can choose between securities that have about the same level of risk.

The SEC has suggested new rules for the agencies aimed at limiting conflicts and disclosing more information. For example, the firms would be barred from advising banks on how to package securities to get the highest ratings.

The commission said the agencies are willing to make changes, and S&P has already took 27 steps in February to avoid future problems. "Standard and Poor's is fully committed to increased openness and transparency," said spokesman Ed Sweeney.