Pension Funding Gains Modestly in September

The aggregate deficit in pension plans sponsored by S&P 1500 companies decreased $38 billion during September, to $593 billion, according to figures from Mercer.

This deficit corresponds to an aggregate funded ratio of 73% as of September 30, 2012, compared with a record low funded ratio of 70% as of July 31, 2012, at which point the aggregate deficit was $689 billion.   

The combination of domestic and international equity markets rising approximately 3% during September and discount rates remaining relatively flat helped spur the rebound, Mercer said . Rates had been at a record low at the end of July. Mercer projects a significant increase in year-end balance sheet adjustments and P&L expense for many plans for 2013 and beyond.   

“While it is good to see some improvement over the past few months, the funded status of most U.S. pension plans has declined over the past year,” said Jonathan Barry, a partner with Mercer’s retirement risk and finance business.“From last September 30, which is a fiscal year end date for some plan sponsors, to this September 30, the deficit has increased $81 billion, from $512 billion to $593 billion underfunded, despite significant contributions being made to these plans over the past 12 months. Since December 31, 2011, the deficit has increased by $109 billion. Plan sponsors need to brace themselves for the balance sheet and P&L implications of these funded status declines as they budget for fiscal 2013. Time is running out for major positive market moves to significantly reduce pension deficits for this calendar year.”   

Barry added that following final guidance from the Internal Revenue Service (IRS) about MAP-21 [Moving Ahead for Progress in the 20th Century Act] funding relief, Mercer is getting a sense of cash requirements for 2012.“While most sponsors have an opportunity to lower near-term contribution requirements, companies should be sure to consider the true deficit they are now facing, and may want to contribute more than these new requirements to help address this shortfall,” he said.