In its own estimate, Mercer estimated the aggregate funding ratio of pension plans sponsored by S&P 1500 companies increased to 97% as of Dec. 31 from 84% a year earlier. It is the highest ratio achieved since year-end 2007 when the estimated aggregate funding ratio reached 104%.
"Almost 40% of plan sponsors in the S&P 1500 we're estimating are going to be 100% or better, and that's a pretty big number," Mr. McDaniel said. "Certainly the highest it's been in quite some time."
The increase in interest rates is the difference maker, according to Mercer's estimate. The typical discount rate measured by the Mercer Yield Curve increased to 2.76% as of Dec. 31 from 2.32% a year earlier, although it's still well below its 6.04% level at the end of 2007.
Mr. McDaniel said corporate sponsors' efforts to derisk their plans for the past 15 to 20 years has positioned them far better than they were positioned before the financial crisis.
"Certainly plan sponsors are better protected today than they were in 2007 from downturns in the markets. We've seen much more ongoing prevalence of liability-driven investing and liability hedging leading to reductions in allocations to equities as funded status improves," Mr. McDaniel said.
"An equity market correction would not surprise me in the least sometime in 2022," he added. "Some plan sponsors will shrug that off as insignificant because they're so well insulated from market shocks. It won't really bother them."
Joseph Gamzon, New York-based managing director, retirement, at Willis Towers Watson PLC, said in a phone interview that a number of clients reduced their allocations to equities several times in 2021 due to the ongoing improvements in their funded status during the year that brought them further along their LDI glidepaths.
A Willis Tower Watson examination of data from 361 Fortune 1000 companies that sponsor DB plans estimated the funding ratio reached 96% as of Dec. 31, up from 88% a year earlier and the highest estimated ratio since the firm's estimate of 107% as of Dec. 31, 2007.
The improved funding "really gives plan sponsors the option to go in a number of different directions if they want," Mr. Gamzon said.
U.S. corporate pension plans reach nearly 100% funded status at the end of 2021, an achievement not seen since before the financial crisis.