US pension plan funding levels at two-year high

Pension planThe aggregate deficit of pension plans sponsored by S&P 1500 companies fell $150 billion (€114.6 billion) in May, according to new figures, meaning the aggregate funding ratio has increased from 80% to 86% - the highest level since June 2011.

At the end of last month, the aggregate deficit stood at $269 billion, according to data from investment consultancy Mercer. This compares to $557 billion in December last year.

Mercer says the improvement in schemes' finances was the result of a continuing bull market in equities, which saw 2.3% growth in May, and a rise of 46 basis points in high quality corporate bond rates, which reduced estimated liabilities by over 7%.

“We have seen great leaps in funded status in the first half of 2013, and sponsors will certainly be hoping for more of the same over the coming months,” says Jonathan Barry, a partner in Mercer’s retirement business.

“This improvement dovetails nicely with feedback we are getting from clients who have implemented a glide path strategy - they are reaping the rewards of this rapid improvement and locking in the gains.”

Mercer estimated that the aggregate value of pension plan assets of the S&P 1500 companies at the end of December was $1.59 trillion, compared with estimated aggregate liabilities of $2.14 trillion.

Adjusting for changes in financial markets since then, as well as changes to the S&P 1500 constituents and newly released financial disclosures, Mercer says schemes' aggregate assets are now worth an estimated $1.7 trillion, compared with estimated liabilities of $1.97 trillion.

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