Following a June swoon dive, U.S. pension plan funded statuses proved to replete some of their diminished assets thanks to a rising equity market, which returned nearly 7% last month, a new study claims.
At the end of July, deficits for pension plans sponsored by S&P 1500 companies decreased by nearly $20 billion to $431 billion. Alternately, funded status for the group bumped by 2% to 75%, Mercer said in an announcement today.
While the year has seen a slight uptick for the plans, the Marsh & McLennan subsidiary said that 2010’s numbers do not even come close to those of 2009, where the year-end deficit was $247 billion with a funded status of 84%.
“Equity values have experienced significant volatility,” the global financial services firm explained in the Aug. 10 press release. “Through the end of July, the year-to-date equity returns were flat, a combination of a strong up market in July and the first quarter of 2010 and a strong down market in the second quarter of 2010.”
Gordon Young, the Integrated Retirement Financial Management business leader for Mercer in the U.S., said in his comments that the recent volatility has made plan sponsor more aware “of the need to model year-end results, and their impact on plan costs for 2011, under several different scenarios.”
Furthermore, Mercer explained that future plan sponsor concerns center around the AA bond yield, which has recently dropped below 5.5%. Reasons for this apprehension, Young said, is the fact that pension plan liabilities are calculated by using such bond yields, which in turn could mean elevated obligations.
Alternately, he highlighted that limited pension funding relief recently passed by the President could also spell out somewhat lower contributions for pension plans.
“If the market does not make up the reduction in funded status due to lower contributions based on the relief, various [Pension Protection Act] outcomes based on funded status could be adversely affected,” Young said in his comments.
In addition to its health, retirement and benefits products, Mercer also utilizes an investment services division, which offers consulting and multi-manager investment management services to its clients.