April a Good Month for Pension Funding: Mercer

May 8, 2009 (PLANSPONSOR.com) - Plan deficits shrank in April for the second successive month with a strengthening equity market and stable bond yields, according to Mercer.

A Mercer news release said the funded status of pension plans of S&P 1500 companies improved by $48 billion in April, following a $158-billion lift in March (see  Largest Companies’ Pensions Show Funding Improvement in March ).

That means the estimated aggregate deficit of pension plans sponsored by S&P 1500 companies was $167 billion at the end of April, down from $215 billion at the end of March and $409 billion at the end of December 2008, Mercer said. The aggregate funded status was 87% at the end of April, up from 83% at the end of March. The December 2008 year-end funded status was 75%.

“Through April, equity markets continued to improve, increasing the value of plan assets,” said Adrian Hartshorn, a member of Mercer’s Financial Strategy Group, in the news release. “Corporate bond yields decreased slightly, which very slightly increased the value of plan liabilities. The net result was another increase in funded status”.

Hartshorn asserted the April numbers had extremely positive implications for sponsors’ continuing efforts to manage their pension liabilities.

“As funded status increases, we believe that there are opportunities for sponsors to lock in to the higher funded position,” he claimed. “Add to this the additional flexibility on cash contributions made possible by the March 31 announcement by the IRS, and there may be some real opportunities for sponsors to manage future cash flow and expense within a much more predictable and acceptable range.”..

Mercer said the estimated total value of pension plan assets at December 31, 2008, was $1.21 trillion, compared with estimated liabilities of $1.62 trillion. Allowing for changes in financial markets in 2009 year-to-date, the estimated assets were $1.15 trillion, compared with the estimated value of the liabilities of $1.32 trillion, according to the announcement.