According to a new study, as a group, the defined-benefit plans of the companies in the index were overfunded by $63.4 billion for 2007, compared with an underfunded status of more than $40 billion in 2006. Funding improved to 104.4 percent in 2007, from 97.3 percent in 2006, but remained well below the 128.2 percent peak in 1999, at the end of the bull market.

The number of companies in the index that had fully funded pension plans rose to 127 in 2007, up significantly from 85 in 2006 and 47 in 2005. Last year was the first time since 2001 that the S&P 500 DB plans were overfunded as a group.

Good news, but other post-employment benefits, or OPEBs—primarily medical and drug plans—remain severely underfunded.

Within the S&P 500, the aggregate OPEB underfunding declined from $293.7 billion in 2006 to $269.1 billion in 2007. While the 26.2 percent funding level last year was an improvement, it pales in comparison to the 104.4 percent funding for pensions.

More worrisome, of the 310 companies in the S&P 500 that offer other post-employment benefits, only six have overfunded OPEB plans.

"The situation for OPEBs continues to be bleak as global pressures are forcing U.S. companies to scale back benefits to remain competitive in markets where many of their peers do not have these expenses," explained Howard Silverblatt, senior index analyst at Standard & Poor’s and author of the report.

Standard & Poor’s expects the pullback in benefits to continue as companies increase co-payments and premiums, cover fewer employees and shift a greater portion of the expense to workers and retirees.

As for DB plans, several elements contributed to the overfunded pension position of the S&P 500 companies in 2007. Silverblatt pointed out that plan sponsors invested heavily in international markets, especially emerging markets, last year. Gains abroad helped offset a subpar year in the U.S. markets.

Liabilities also were kept in check because of higher discount rates, fewer covered employees and fewer payments to those who were covered.

Accounting rules played a role too, now that companies must show pension funding on their balance sheets. "Combining all of this with the desire of companies to add contributions to show improved numbers, you have an overfunded pension situation," Silverblatt wrote.

For this year, Silverblatt indicated that pension funds are running more than $100 billion short of the 8 percent return they had projected for 2008. Cautious optimism has returned, however.

"Based on our projections, Standard & Poor’s expects to see 2008 pensions remaining fully funded on an aggregate level, with companies contributing a bit more than they are currently expecting to," he said.

Filed by John Goff of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.