S&P 1500 Pension Funding Stable in February

March 5, 2013 (PLANSPONSOR.com) - The aggregate deficit in pension plans sponsored by S&P 1500 companies decreased by $3 billion to $479 billion as of the end of February 2013, according to Mercer.

The funded ratio (assets divided by liabilities) remained at 77% during the month. This deficit compares to an aggregate pension deficit of $482 billion on January 31, 2012.  

The slight improvement of the past month was driven by positive equity growth during the month, which gained just more than 1%, driving the S&P to near record highs by the end of February.However, the high quality corporate bond rates which affect the liabilities fell about between 3 and 11 basis points.  

“While this month’s stabilization of funding is good news, we likely won’t see significant jumps in funded status until interest rates start to move higher or sponsors put more cash into these plans,” said Jonathan Barry, a partner in Mercer’s Retirement business.  

Mercer continues to see interest in annuity purchase, and other risk transfer strategies. “Even with rates at historical lows, our research has shown that the buyout cost may not be as high as some sponsors have assumed.” said Sean Brennan, a principal in Mercer’s Financial Strategy Group. “At the end of 2012, The Mercer US Pension Buyout Index shows that the estimated buyout cost for retirees only was 108% of the accounting liability. By contrast, for sponsors who keep the liabilities on the books, the capitalized value of administrative costs alone may run as high as 10%.” (See “Mercer Launches Pension Buyout Index”)