Funded Status Recovery Sputters in May

June 5, 2009 ( - The funded status of pension plans has improved significantly since December 2008, but the recovery faltered a bit in May, according to the latest estimates by Mercer Investment Consulting.

According to the Mercer analysis, the funded status of pension plans of S&P 1500 companies deteriorated by $85 billion in May, resulting in an estimated aggregate deficit of $252 billion at the end of May, up from $167 billion at the end of April (see  April a Good Month for Pension Funding: Mercer ).

The aggregate funded status was 83% at the end of May, down from 87% at the end of April. The 2008 year-end deficit was $409 billion, equivalent to a funded status of 75%. The Mercer analysis also shows that, despite the fall in funded status in the last month, there remain approximately 20% of plan sponsors who have plans with a funded status of over 90%.

The decline in funded status comes despite a continued improvement in equity markets (during May, the S&P 500 total return index was up 5.6%). The improvement in asset values was more than offset by an increase in liabilities caused by declining corporate bond yields (the Mercer Yield Curve mature plan index rate was down 0.8%). The net result was a decline in funded status, Mercer said.

“Markets are still volatile and unpredictable,” said Adrian Hartshorn, a member of Mercer’s Financial Strategy Group, in a news release. “The $85-billion loss in May shows that plan sponsors continue to be exposed to changes in the value of plan assets, predominantly equities, and changes in the value of plan liabilities, which behave like bonds.”

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 $1.19 trillion, compared with the estimated value of the liabilities of $1.44 trillion, Mercer said.