Study Finds Some Plans in Good Shape

There’s good news for your clients enrolled in pension plans at the largest U.S. companies.

According to a Mercer study, in 2007, the financial health of pension plans at these companies improved for the second straight year, with aggregate pension assets exceeding aggregate pension liabilities for the first time since the end of 2001. Aggregate pension plan assets of $1.56 trillion exceeded aggregate pension liabilities of $1.50 trillion in 2007 for the first time since year-end 2001, when aggregate pension plan assets of $951 billion backed pension obligations valued at $929 billion.

The funded status of pension plans sponsored by companies in the S&P 500 improved due to net asset returns generally exceeding expected 2007 targets, along with a 30 to 50 basis point increase in the discount rates used to value the actuarial pension liabilities. This combination helped to improve the median-funded status for individual pension plan sponsors in the S&P 500 to 94 percent at fiscal year-end 2007, up from 89 percent at the end of 2006.

In the report “How does your retirement program stack up? – 2008,” Mercer analyzes retirement program data disclosed by the S&P 500 companies in their 10-K reports for 2007. The analysis enables companies to better understand how pension costs affect their overall cost structure, risk profile, and competitive position. “Retirement programs – including traditional defined benefit pension plans – are an important, and integral, part of a company’s financials as well as a key human resource strategy, but they operate in a changing landscape,” says Steve Alpert, a principal and consulting actuary with Mercer and primary author of the study. “