Pension plans sponsored by S&P 1500 companies saw a $41 billion drop in their pension deficits in October, according to Mercer. The deficit went from about $512 billion at the end of September 2011 to $471 billion at the end of October. Pensions were funded at a ratio of 75 percent as of Oct. 31, compared to a funded ratio of 72 percent at the end of September and 81 percent on Dec. 31, 2010.

The increase in funded status was driven by an 11 percent gain in equities, partially offset by the continued decrease in yields on high-quality corporate bonds during October. Discount rates for the typical U.S. pension plan decreased approximately 15 basis points during the month. Mercer's analysis indicates the S&P 1500 funded status peaked at 88 percent at the end of April, and had seen a 16 percent decline before rebounding this past month.

"Market volatility continues to make many plan sponsors very uneasy" said Jonathan Barry, a partner with Mercer's Retirement, Risk and Finance business.   "While most of October showed gradual improvement in funded status, we actually saw a 3 percent drop in funded status in just the last two days of the month.   Furthermore, it is likely that much of the gain we saw in October was wiped out in just the first day of November."