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Pension Plans' Funded Status Up on Stronger Equity Market: Mercer

The average funding level of pension plans sponsored by companies in the S&P 1500 rose to 73 percent in September, up from 72 percent in August and the record-low funded ratio of 70 percent set in July.

October 2, 2012
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Funding levels of large corporate pension plans improved in September as a strong equity market improved plans' funded status, according to an analysis released Tuesday by Mercer L.L.C.

The average funding level of pension plans sponsored by companies in the S&P 1500 rose to 73 percent in September, up from 72 percent in August and the record-low funded ratio of 70 percent set in July.

In addition, the aggregate deficit of the plans fell to $593 billion, compared with $631 at the end of August and $689 billion at the end of July.

Still, even with the last two months of improvement, plan underfunding has grown dramatically since last year. For example, September's aggregate funding deficit of $593 billion compares with a $484 billion funding shortfall at the end of 2011.

"While it is good to see some improvement over the last few months, the funded status of most U.S. pension plans has declined over the past year," Jonathan Barry, a Mercer partner in Boston said in a statement.

Amid the ups and downs of their pension plans funding levels, more employers are examining ways to reduce pension plan risk.

Just in the last few weeks, several big employers, including agribusiness giant Archer Daniels Midland Co. and automotive industry supplier Visteon Corp. have announced programs in which they will offer to certain plan participants the opportunity to convert their annuity benefit to a cash lump-sum benefit, removing the liability and guesswork about how much they will have to contribute to the plans in the future to pay the promised benefits.

Jerry Geisel writes for Business Insurance, a sister publication of Workforce Management. Comment below or email editors@workforce.com.

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