S&P 1500 companies' pension plans had an aggregate funding ratio of 84% in January, up three percentage points from a month earlier, reducing the plans' total deficit by $45 billion to $270 billion, according to a Mercer report.
The improvement in funding was a result of strong equity returns and an increase in high-quality corporate bonds yields, which increased the discount rate by approximately 20 basis points.
The estimated aggregate value of S&P 1500 pension plan assets was $1.38 trillion in January, with aggregate liabilities of $1.65 trillion, according to a Mercer news release about the report.
“The continued improvement in funded status is encouraging news,” Jonathan Barry, a Mercer partner and head of Mercer's retirement risk and finance business, said in the release. “As we saw in 2010, however, funded status doesn't always move in a positive direction and plan sponsors need to be prepared for continued volatility.
“With the gains that have been achieved, we could see an acceleration in the shift away from equities into bonds for corporate pension plans, as sponsors are willing to give up some expected return to reduce the variability of pension funding and accounting costs,” Mr. Barry said in the release. “Sponsors looking to reduce pension risk should develop a thoughtful, executable plan that makes economic sense for the company and ensures that risk is managed in a prudent manner.”