Mercer: Pension Plan Funding Declines in April

(May 2, 2012) — The funded ratio of pension plans sponsored by the S&P 1500 fell to 79% in April 30, 2012, according to new figures from Mercer.

After three consecutive months of improvement in funded status, US pension plans suffered declines in April, attributable to an increase in liabilities due to declining interest rates.

The funded ratio of pension plans sponsored by the S&P 1500 fell to 79% as of April 30, 2012, according to the consulting firm. “It’s an important reminder to plan sponsors that these plans can go down just as quickly as they went up,” said Jonathan Barry, a Partner in Mercer’ Retirement Risk and Finance business.

The aggregate deficit in pension plans sponsored by S&P 1500 companies grew $73 billion in April to $409 billion, according to Mercer. While this deficit corresponds to an aggregate funded ratio of 79% as of April 30 2012 compared to a funded ratio of 82% as of March 31, the funded ratio is still up from 75% at December 31, 2011.

Interest rates on high quality corporate bonds, which are used to measure the pension liability, fell 22-32 basis points during the month, as measured by the Mercer Pension Discount Yield Curve. Meanwhile, assets were relatively flat during the month as US equity markets were down about 0.6% for the month, offset by positive returns for fixed-income investments.

Alongside the negative results from Mercer, Wilshire has found that US public pensions ended the first quarter with a median gain of 7.5%, the best performance since 2010, buoyed by stocks and real estate. The firm found that in the year ending March 31, median returns were 4.07%. Over three years, median returns totaled 16.05%, according to the report by Wilshire Trust Universe Comparison Service in California.