The defined benefit plans of S&P 500 companies had an aggregate funded ratio of 84% as of Dec. 31, up six percentage points from a year earlier, according to Bank of America Merrill Lynch.
The increase was primarily driven by an average 20.33% return on assets among the plans for 2009. The aggregate deficit was $227 billion as of Dec. 31, the company said in a news release.
According to BofA Merrill Lynch estimates, financial companies were the best funded among the S&P 500 plans in 2009, at 96%, while the energy sector was the worst at 74%.
John Haugh, BofA Merril Lynch research analyst, said in a telephone interview that although funded ratios improved in 2009, many corporate plans still face big deficit-to-market-cap ratios.
Huge deficits take away from the value of a company’s stock, he said, noting that a pension plan at a company like Goodyear Tire & Rubber, for example, has a funded ratio of 73% and a deficit-to-market-cap ratio of 59%.
“Those are the companies that need to take a hard look at the funded status with respect to the size of their company,” he said.
Deficit-to-market-cap ratios of more than 15% should be cause for concern for companies, he said.