S&P 1500 Hits Highest Pension Funding Since ’08

Funding levels of pension plans sponsored by S&P 1500 companies continued a strong rebound in 2013.

The aggregate deficit decreased by $10 billion during the month of July, resulting in a $212 billion deficit as of July 31, according to Mercer. The funded ratio (assets divided by liabilities) increased from 88% to 89% during July—up 15% since the end of 2012 and its highest level since October 2008.

Equity markets staged a strong performance during the month, with the S&P 500 index rising 5.1%. Discount rates dropped back slightly in July after sharp increases in May and June, dampening the improvement slightly.

According to Mercer’s analysis, an estimated 17% of plan sponsors had assets in excess of their pension obligations as of July 31, compared to only 4% at December 31, 2012. Mercer also estimates that if discount rates rose another 1%, the number of sponsors with fully funded pension obligations could exceed 40%.

“So far, plan sponsors are having a great year in terms of funded status improvement,” said Jonathan Barry a partner in Mercer’s Retirement consulting group. “As a result, many sponsors are beginning to take preparatory steps not only in terms of asset allocation changes but also in preparing for pension buyouts and cashouts that entail a series of transition, legal and administrative steps. Sponsors don’t want to be caught napping as these opportunities arise.“