The funded status for pension plans continued to move upward for the second straight month, according to data released by Mercer.
According to the consulting firm’s findings, the deficit in pension plans sponsored by S&P 1500 companies decreased by $56 billion to $373 billion at the end of October, resulting in a funded status of 78%. Mercer reported a funded status of 76% at the end of September.
The results can be attributed to continued gains in the equity markets and rising yields on long maturity AA bonds, Mercer said in the Nov. 2 announcement. Because pension plan liabilities are valued using similar AA bond yields, the result was generally higher discount rates and lower liabilities for most plans as the of the October, Mercer explained.
"Although long maturity AA bond rates have risen in October, they are still down 60-70 basis points for the year," says Kevin Armant of Mercer’s financial strategy group.
"The impact of declining interest rates has resulted in liability increases which have more than offset the benefit of positive asset performance year to date. While October showed some improvement in the aggregate funded status, there is still a long way to go before most plans will be considered adequately funded" he adds.
Mercer estimates the aggregate combined funded status position of pension plans operated by S&P 15000 companies on a monthly basis.
Lewis is editor in chief of Investment Management Weekly, a SourceMedia publication.
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