S&P 1500 companies' defined benefit pension plans had an aggregate funding ratio of 78% in January, up from 75% in December, according to Mercer.
The overall funding deficit fell to $431 billion as of Jan. 31, down from $484 million the previous month.
The increase in the January funding ratio was driven primarily by positive asset performance, according to Mercer. U.S. equity markets were up 4.5%; U.S. fixed income returned more than 1.5%.
However, interest rates on high-quality corporate bonds decreased further, meaning mature plans could see their discount rates fall by up to 20 basis points, somewhat offsetting asset returns.
Kevin Armant, a principal with Mercer's financial strategy group, said he would not be surprised if interest rates stay where they are for the next two years. Since plans are so underfunded, that means they will need “very strong asset performance” to get those funding ratios up, he said. “It's going to be a continued struggle,” Mr. Armant said.
“We're starting to see plan sponsors plan and announce large contributions coming up to help funding,” Mr. Armant said in a telephone interview. “The potential for a continued decline in interest rates has been a surprise to plan sponsors.”
The high-quality corporate bond yield dropped to 4.51% at the end of January from 4.55% at the end of the year.
The estimated aggregate value of pension plan assets of the S&P 1500 companies as of Jan. 31 was $1.5 trillion, up from $1.45 trillion as of Dec. 31. Liabilities remained flat at $1.93 trillion.