U.S. Pension Plans Chip Away at Deficits in June

July 11, 2011 (PLANSPONSOR.com) - The aggregate deficit in pension plans sponsored by S&P 1500 companies decreased by $15 billion during June, from a deficit of approximately $246 billion as of May 31, 2011, to $231 billion as of June 30, according to new figures from Mercer.

This deficit corresponds to an aggregate funded ratio of just over 86% as of June 30, compared to a funded ratio of just under 86% at May 31, 2011. Overall, funded status has improved during 2011, nearly 5% higher than the 81% funded position recorded at December 31, 2010.  

A Mercer news release said the slight improvement in June comes on the heels of a set-back in May, where the S&P1500 saw an aggregate decline in funded status of approximately $37 billion.  Looking back over the past 12 months, funded status has improved by over $200 billion, as Mercer estimated the S&P 1500 funding deficit to be $451 billion at 6/30/2010, which corresponded to a 73% aggregate funded ratio.   

The improvement in funded status was seen almost entirely in the last two weeks of the month.   The S&P 500 index increased by over 4% between June 15 and June 30, and yields on high quality corporate bonds during the last week of the month, with discount rates for the typical U.S. pension plan increased approximately 18-21 basis points.      

“Overall however, the improvement in funded status over the past year is quite encouraging.   We are seeing many plan sponsors move to more frequent funded status monitoring policies, to take steps to lower their funded status volatility as funded status improves”   said Jonathan Barry, a partner with Mercer’s Retirement, Risk and Finance group, in the news release.  “With astrong monitoring system in place, sponsors, can potentially capitalize quickly on funded status improvements, and move to lower risk positions.”