The funding ratio of S&P 1500 companies' defined benefit plans improved to 72% in August, up from a record low of 70% in July, according to Mercer's monthly funded status report.
The overall funding deficit dropped to $631 billion from $689 billion in July. The discount rate increased 12-14basis points from a record low of 3.48% in July.
“I think there was less (bad) news globally, in Europe and the U.S., and people moved away from Treasuries a little,” said Kevin Armant, principal in Mercer's financial strategies group, about the uptick in discount rates. However, he said there are no signs that rates will continue to increase.
Mr. Armant added there was no clear-cut explanation for the August data and that the uncertain economic environment is expected to continue through the end of the year, highlighted by the “fiscal cliff” where Congress will have to make decisions on expiring tax breaks and mandatory spending cuts.
U.S. equity markets increased more than 2% in August, providing asset growth along with decreased liabilities.
The estimated aggregate value of pension plan assets of the S&P 1500 companies at the end of August was $1.59 trillion, up from $1.57 trillion in July. The aggregate liabilities decreased to $2.22 trillion from $2.26 trillion in July.