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January 06, 2014 at 06:01 AM
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.
