U.S. pensions improve funded status

The aggregate deficit in pension plans sponsored by S&P 1500 companies decreased by $4 billion during April, according to new figures from Mercer, a global HR consulting firm.

The plans improved from a deficit of approximately $213 billion as of March 31 to $209 billion as of April 30, continuing a run of monthly improvements dating back to September, 2010. This deficit corresponds to an aggregate funded ratio of 88% as of April 30, compared to a funded ratio of 81% in December 31, 2010.

This is the eighth month of improving funded status for S&P 1500 companies since a low point of 71% was reached in August 31, 2010, Mercer reports.

“The April results continue to highlight the sensitivity of U.S. pension plans to interest rate movements” says Jonathan Barry, a partner with Mercer’s retirement risk and finance group. “We saw that a fairly modest dip in rates almost wiped out a very robust month of investment gains. In addition, plan sponsors should be careful not to assume that equity markets will always go up. The investment strategies employed by many sponsors continue to expose plan sponsors to the risk of negative equity investments and interest rate mismatches.”

Nearly one in four plan sponsors have fully funded benefit obligations now, compared to only one in 15 last August, on an accrued benefits basis, which excludes future salary growth, Mercer reports.

“One positive to take away from the continued improvement in funded status is the opportunity for plan sponsors to re-evaluate their pension financial policies and potentially reduce some of the risks they are exposed to,” Barry says.