After significant improvements during the first quarter of 2013, the pension plans sponsored by S&P 1500 companies suffered a setback during April, with the aggregate deficit increasing by $47 billion during the month, resulting in a $419 billion deficit as of the end of April 2013, according to Mercer. The funded ratio (assets divided by liabilities) fell from 82% to 80%, which is still an improvement over the estimated 74% at December 31, 2012.

Despite continued strengthening in equity markets during the month of April (1.93%), high quality corporate bond rates fell approximately 21 basis points to 3.65%, driving the estimated liabilities up almost 4%.

“After six straight months of improvements in funded status, April saw a bit of a step back for U.S. pension plans,” said Jonathan Barry, a partner in Mercer’s retirement business. “It’s an important reminder to plan sponsors that these plans can go down just as quickly as they went up.”

Mercer sees a continued interest in plan sponsors moving towards risk management strategies to help reduce the funded status volatility. Plan sponsors also continue to explore various risk management strategies in 2013, ranging from glide path strategies to cash outs and/or annuity purchases for former employees.

In response to the rising interest in risk transfer strategies, Mercer recently launched the Mercer Buyout Index, which allows plan sponsors to evaluate the cost of an annuity buyout against the liability held on the balance sheet, as well as the administrative costs and other expenses involved in holding plan liabilities.

“At the end of March, the index showed that the cost of purchasing annuities for a retiree group was only 10% higher than the accounting liability,” said Leah Evans, a principal in Mercer’s Financial Strategy Group. “However, we estimate the cost to hold these liabilities for a typical plan is about 9% of the balance sheet liability, so a buyout which removes pension volatility risk can be a very attractive option for many sponsors once these cost savings are considered.”

Mercer’s monthly estimates of the aggregate funded status of S&P 1500 plans are based on each company’s year-end statement and on projections to April 30 in line with financial indices. This includes U.S. domestic qualified and non-qualified plans and all non-domestic plans. The estimated aggregate value of pension plan assets of the S&P 1500 companies as of December 31, 2012, was $1.59 trillion, compared with estimated aggregate liabilities of $2.14 trillion. Allowing for changes in financial markets through April 30, changes to the S&P 1500 constituents and newly released financial disclosures, the estimated aggregate assets were $1.71 trillion, compared with the estimated aggregate liabilities of $2.13 trillion.