DB Plan Funded Status Up for Quarter, Down for Year

October 4, 2010 (PLANSPONSOR.com) - The funded status of U.S. pension plans improved during September from the historic low position recorded at the end of August, resulting in the health of pension plans, as measured on a mark-to-market basis, being up slightly for the quarter but still down for the year.

Mercer said the deficit in pension plans sponsored by S&P 1500 companies decreased by $79 billion to $428 billion at the end of September according to its figures. This deficit corresponds to a funded status of 76%, compared to a funded status of 71% at the end of August and 84% on December 31, 2009.   

“Pension plan funded status has moved 18% in just the past 6 months, initially falling from 84% to 71% and subsequently rising to 76%,” said Gordon Young, the Integrated Retirement Financial Management leader for Mercer in the U.S., in a news release. “With only three months remaining until the next required measurement date for most plan sponsors, there is continued concern about market volatility and what the 4th quarter of 2010 will look like.”  

Equity returns for September were 9%, which is the best month of performance in 2010. The level of the AA bond yield, which declined to historic lows as of the end of August, rose by 8 basis points in September (for a mature plan). Because pension plan liabilities are valued using the AA bond yield, these slightly higher yields translate into slightly lower plan liabilities.   

“In an environment of increased funded status volatility, having governance processes in place that allow investment committees to implement asset allocation changes effectively and efficiently can have significant financial benefit,” advised Mick Moloney, global head of Mercer’s Financial Strategy Group, in the announcement.