Funding deficits for pension plans shrink

Pension planFunding deficits for pension plans sponsored by S&P 1500 companies have decreased in March, according to Mercer, as equity markets gained momentum.

The aggregate deficit for pension plans stood at $372 billion (€290.2 billion) at the end of March, a decrease of $185 billion from the record deficit seen at the end of last year.

Mercer says the “significant improvement” was driven by positive equity growth, although the high quality corporate bond rates increased slightly, impacting the liabilities.

The funded ratio improved to 82% at the end of March, compared to 77% a month earlier and 74% at the end of last year.

Not all gains were down to investment performance, though. Assets increased as contributions increased. During the fiscal year ending in 2012, S&P 1500 plan sponsors contributed over $80 billion to their plans.

“However, there is still some heavy lifting for plan sponsors to do to get to a fully funded position,” says Jonathan Barry, a partner in Mercer’s retirement business. “Also, we saw a similar pattern in 2011 and 2012, where funded status improved significantly in the first quarter, only to see those gains reverse themselves as the year went on.”

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