Mercer: Little Improvement in Pension Status for S&P Cos.

Despite a jump from 2008 lows, Standard & Poor’s (S&P) 1500 companies saw little change in their pension plans funded status last year, a new study claims.

According to Mercer’s “How Does Your Retirement Program Stack Up?-2010,” median pension funding status “improved only three percentage points to 75% at fiscal year-end 2009.” The moderate increase is credited to increased liabilities due to falling discount rates. At the close of the year, the aggregate of assets was approximately $1.3 trillion, roughly $291 billion short of the $1.6 trillion liabilities marker.

Additionally, as of March 31, assets were $252 billion short.

“Pension deficits decreased by only $14 billion during the fiscal year," said Steve Alpert, a Mercer principal and consulting actuary and the study's primary author. “Liability losses of $180 billion, mostly due to falling discount rates, plus new benefit accruals of $30 billion, offset the positive asset performance and contributions.”

Positive foreshadowing

At the end of 2010, the Marsh & McLennan subsidiary projects that there is a “90% chance” that the S&P 1,500 companies’ funded status could be between “a deficit of $582 billion and a surplus of $98 billion,” Mercer’s Integrated Retirement Financial Management (iRFM) leader Gordon Young said. He added that pension commitments to “higher-risk assets such as equities or real estate” could possibly cause this change.

“The heavy weight toward these 'risky' assets means that companies are expecting greater, but more volatile returns,” Young said. He also helped to co-author the study.

Furthermore, the study, which looks at the companies’ retirement program data from their 10-K reports, states that these institutions have continued to transition pension plans from a defined benefit (DB) to a defined contribution (DC) focus. As proof, the study states median costs for DC plans (0.39%) exceeded that of DB schemes (0.35%).