Large corporations that sponsor pension plans saw their funded status improved for the fifth straight month, according to new research by Mercer.

The HR/benefits consulting firm found that the aggregate deficit in pension plans sponsored by S&P 1500 companies declined by $45 billion during January, from a deficit of $315 billion at year-end 2010 to $270 billion at the end of January 2011.

As a result, the deficit represents an aggregate funded ratio of 84% for January, compared to a funded ratio of 81% for December 2010. The new figures also reflect a five-month upturn in the funded status of pension plans by S&P 1500 companies. In August 2010, the plans faced a deficit of $500 billion.

The January gains were due to "the combination of positive equity market returns, with the S&P 500 index gaining over 2%, paired with an increase in high quality corporate bond yields resulting in the discount rate for the average U.S. pension plan increasing approximately 20 basis points during the month," explain Mercer analysts.

Each month, Mercer examines pension plans operated by S&P 1500 firms by studying filed financial statements and indices.

"The continued improvement in funded status is encouraging news for plan sponsors. As we saw in 2010, however, funded status doesn’t always move in a positive direction and plan sponsors need to be prepared for continued volatility," says Jonathan Barry, a partner with Mercer’s retirement risk and finance consulting group.

"With the gains that have been achieved,  we could see an acceleration in the shift away from equities into bonds for corporate pension plans, as sponsors are willing to give up some expected return to reduce the variability of pension funding and accounting costs," he adds. "Sponsors looking to reduce pension risk should develop a thoughtful, executable plan that makes economic sense for the company and ensures that risk is managed in a prudent manner."

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