The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies fell by 1 percent to 82 percent in November, thanks to mixed equity markets and increasing rates.
According to global consultant Mercer, as of November 30, the estimated aggregate deficit of $397 billion increased by $11 billion, when compared with levels at the end of October. Funded status is now up by $107 billion from the $504 billion deficit measured at the end of 2014.
The S&P 500 index stayed flat and the MSCI EAFE index dropped 1.7 percent in November. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased to 4.18 percent.
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"November was able to hold most of the improvements in funded status from October, giving hope that 2015 will end up with a positive improvement in funded status when only a few months ago it looked like 2015 could be a damaging year for pension plans," Jim Ritchie, a principal in Mercer's retirement business, said in a statement.
Ritchie said that most of the improvement in funded status for the year thus far has come from rising interest rates, because equity markets have been up "only slightly in 2015."
However, he added, "While interest rates are still at historic lows, we see many plan sponsors now locking into the funded status improvement and executing on risk transfer strategies." By doing so, he said, they're trying to avoid rising variable-rate PBGC premiums.
According to Mercer data, on December 31, 2007, high-quality corporate bond yields were 6.40 percent. On November 30, 2015, they were just 4.18 percent. Since lower rates mean higher pension funding costs for sponsors, it's easy to see why plan sponsors are anxious to lock in whatever gains they can.
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