The Mercer analysis of S&P 500 plans found that strong returns and a rise in the discount rate contributed to an increase in the median funded status of pension plans from 83% in 2005 to 89% in 2006, Mercer said in a news release. Returns on plan assets improved for the fourth year in a row, with a median return in 2006 of 13.4% versus the expected 8.2%.
The improved funded status also resulted in improved cash flows, as sponsors did not need to make additional plan contributions. These things minimized the effect of FAS 158 – which requires sponsors to recognize funding deficits for pension plans and other post-retirement benefits on their balance sheet (See Running the Fund: Out of Balance ).
While plan sponsors are rethinking aspects of their pension plan programs, it is still unclear what impact the Pension Protection Act of 2006 and mark-to-market accounting rules (See Accounting Rulemakers Ponder ‘Mark to Market’ Approach , Consultant: DB Market Ready for Major Upheaval ) will have on plan design or asset allocations, Mercer said in the news release.
Mercer based its analysis on information in 10-K reports filed for the 2006 fiscal year by 484 plans in the S&P 500. An executive summary of the report, “How does your retirement program stack up?,” is here .