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Pension Funding Levels Improve, but Still Well Below 2011 Peak: Mercer

The consultancy attributed the funding improvement to an 11 percent gain in equity values in October, partially offset by a decrease in corporate bond yields.

November 3, 2011
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Aided by gains in the equity markets, the funding levels of large corporate pension plans improved in October but still are significantly below levels of just a few months ago, according to a Mercer L.L.C. analysis.

The average funding level of pension plans sponsored by companies in the S&P 1500 improved to 75 percent as of Oct. 31, up from 72 percent as of Sept. 30, Mercer said Nov. 3.

Mercer attributed the funding improvement to an 11 percent gain in equity values in October, partially offset by a decrease in corporate bond yields.

Still, at 75 percent, the average funding level of large plans is well below this year's peak funded status, set in April when plans had an average funded ratio of 88%.

At the end of 2010, plans sponsored by S&P 1500 companies were an average of 81 percent funded, Mercer reported.

On an aggregate basis, the plans were underfunded by $471 billion at the end of October, an improvement from the record $512 billion in underfunding at the end of September.

Still, "market volatility continues to make many plan sponsors very uneasy," Jonathan Barry, a Mercer partner in Boston, said in statement.

"While most of October showed gradual improvement in funded status, we actually saw a 3 percent drop in funded status in just the last two days of the month. Furthermore, it is likely that much of the gain we saw in October was wiped out in just the first day of November," Barry said.

Jerry Geisel writes for Business Insurance, a sister publication of Workforce Management. To comment, email editors@workforce.com.

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