The median funded ratio for S&P 1500 companies' pension plans rose three percentage points in 2009 to a median 75%, with assets increasing due to strong asset returns and significant contributions, according to a Mercer report.
Aggregate assets were about $1.3 trillion, while liabilities were roughly $1.6 trillion, according to a news release detailing the findings of the report, “How Does Your Retirement Program Stack Up? — 2010.”
“Despite employer contributions of $75 billion and aggregate asset returns of $161 billion — a 19% median rate of return — pension deficits decreased by only $14 billion during the fiscal year,” Steve Alpert, a Mercer principal and consulting actuary and the study's primary author, said in the news release. “Liability losses of $180 billion, mostly due to falling discount rates, plus new benefit accruals of $30 billion, offset the positive asset performance and contributions.
The report also notes that pension assets still are largely invested in higher-risk assets such as equities and real estate, which makes for greater volatility. Study co-author Gordon Young said in the news release that the volatility associated with higher-risk assets gives the S&P 1500 companies a 90% chance of being between a deficit of $582 billion and a surplus of $98 billion by the end of 2010. Mr. Young said in a telephone interview that the analysis shows the wide range of potential volatility before the end of 2010. He said plan executives and participants need to understand the inherent risk in pension plans “then you can mitigate it.”
Also for the second consecutive year, the median cost to provide defined contribution benefits exceeded the median cost for those earned in defined benefit plans. The median DC plan cost in 2009 was 0.39% of revenue, compared to benefit accruals of 0.35% of revenue for DB plans.
“In the new landscape, employees will have to shoulder both a greater share of the burden for their own retirement and more of the associated risks,” Mr. Young said in the release. “As employees begin to understand this new dynamic, employers that recognize and address these emerging employee needs may have a competitive advantage in the labor market.”