US - The aggregate deficit of S&P 1500 pension plans fell by $15bn during June, new figures from Mercer show.
The consultant said the deficit decreased from $246bn as of May 31, 2011 to $231bn as of June 30, which corresponds to an aggregate funded ratio of just over 86% as of June 30. This compares with a funded ratio of just under 86% at May 31.
Overall, funded status has improved during 2011 and is nearly 5% higher than the 81% funded position recorded at December 31, 2010, Mercer added.
The slight improvement in June comes on the heels of a set-back in May, where the S&P1500 saw an aggregate decline in funded status of approximately $37bn. Looking back over the past 12 months, funded status has improved by over $200bn, as Mercer estimated the S&P 1500 funding deficit to be $451bn at 30 June 2010, which corresponded to a 73% aggregate funded ratio.
The improvement in funded status was seen almost entirely in the last two weeks of the month, the figures show. The S&P 500 index increased by over 4% between June 15 and June 30 and yields on high quality corporate bonds rose during the last week of the month, with discount rates for the typical US pension plan increasing by about 18-21 basis points.
"Despite the seemingly small change in overall funded status for the month, we saw tremendous volatility in June," said Jonathan Barry, a partner with Mercer's Retirement, Risk and Finance group. "The first half of the month saw aggregate funded status drop about 3%, driven primarily by declines in the equity markets. However, these declines were more than offset by a strong run-up in equities in the last two weeks of the year, combined with a rise in discount rates used to value pension liabilities."
"Overall however, the improvement in funded status over the past year is quite encouraging. We are seeing many plan sponsors move to more frequent funded status monitoring policies, to take steps to lower their funded status volatility as funded status improves. With a strong monitoring system in place, sponsors can potentially capitalise quickly on funded status improvements and move to lower risk positions."
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