The FINANCIAL — Funding levels of pension plans sponsored by S&P 1500 companies continued a strong rebound in 2013, with the aggregate deficit decreasing by $10 billion during the month of July, resulting in a $212 billion deficit as July 31, 2013, according to Mercer. The funded ratio increased from 88% to 89% during July, up 15% since the end of 2012 and reached their 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.
An estimated 17% of plan sponsors had assets in excess of their pension obligations as of July 31 2013, compared to only 4% at December 31, 2012, according to Mercer analysis. 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," he added.
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 July 31, 2013, changes to the S&P 1500 constituents and newly released financial disclosures, the estimated aggregate assets were $1.76 trillion, compared with the estimated aggregate liabilities of $1.98 trillion, according to Mercer.
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