Large Plan DB Funding Status Improves for 5th Month

February 2, 2011 ( - The aggregate deficit in pension plans sponsored by S&P 1500 companies decreased by $45 billion during January, from approximately $315 billion as of December 31, to $270 billion, according to new figures from Mercer.

This deficit corresponds to an aggregate funded ratio of 84% as of January 31, compared to a funded ratio of 81% on December 31.  

A Mercer news release noted that funded status improved for the fifth straight month after hitting a deficit of $500 billion at the end of August 2010. The improvement in January was due to the combination of positive equity market returns, with the S&P 500 index gaining over 2%, paired with an increase in high quality corporate bond yields resulting in the discount rate for the average U.S. pension plan increasing approximately 20 basis points during the month.   

“The continued improvement in funded status is encouraging news for plan sponsors. As we saw in 2010, however, funded status doesn’t always move in a positive direction and plan sponsors need to be prepared for continued volatility,” said Jonathan Barry, a partner with Mercer’s Retirement Risk and Finance consulting group, in the news release. “With the gains that have been achieved,  we could see an acceleration in the shift away from equities into bonds for corporate pension plans, as sponsors are willing to give up some expected return to reduce the variability of pension funding and accounting costs. Sponsors looking to reduce pension risk should develop a thoughtful, executable plan that makes economic sense for the company and ensures that risk is managed in a prudent manner.”