The survey reveals a 2 percent improvement in the pension funding levels of S&P 1500 companies in December.

Funding levels of pension plans sponsored by S&P 1500 companies continued their run in 2013, according to a new Mercer report.

The report shows a 2 percent improvement in the pension funding levels of S&P 1500 companies in December. The gain yielded a funding ratio (assets divided by liabilities) of 95 percent at the end of the month, up 21 percent for the year.

More than 80 percent of pension underfunding has been eliminated since the beginning of the year, the research shows. The collective deficit of $103 billion as of Dec. 31, 2013, is down $454 billion from the estimated deficit of $557 billion as of Dec. 31, 2012.

Reflecting gains in the equity markets, the S&P 500 index increased by approximately 30 percent during the year. Yields on high grade corporate bond rates also rose, leading to a reduction in pension liabilities.

The Mercer Yield Curve discount rate for mature pension plans rose almost a full percentage point over the year to 4.69 percent from 3.71 percent. For a typical pension plan with a duration of 12 years, this means liabilities will be about 12 percent lower than they otherwise would have been using last year’s discount rate.

“December was yet another present under the tree for pension plan sponsors, who were already having a great year with regards to funded status improvement,” says Jonathan Barry, a partner with Mercer’s Retirement consulting group. “We saw pretty steady improvement month by month, which has been driven by the combination of strong equity returns and rising interest rates.

“The 21 percent improvement is the best annual increase we have seen since we have been tracking this information, and the 95 percent mark is our highest year end result since 2007,” Barry adds. “This improvement should provide significant tailwind for 2014 earnings as pension expense is likely to decline significantly from 2013 levels.”  

The estimated aggregate value of pension plan assets of the S&P 1500 companies as of Dec. 31, 2012, was $1.59 trillion, compared with estimated aggregate liabilities of $2.14 trillion. Allowing for changes in financial markets through Dec. 31, 2013, changes to the S&P 1500 constituents and newly released financial disclosures at the end of December, the estimated aggregate assets were $1.85 trillion, compared with the estimated aggregate liabilities of $1.96 trillion.

Mercer disclosed this finding in a survey that estimates the aggregate funded status position of plans operated by S&P 1500 companies on a monthly basis. Including U.S. domestic qualified and nonqualified plans and all nondomestic plans, the estimates are based on company year-end statements and projections through Dec. 31, 2013.