Funded Ratio for US Corporates Inches Higher in March

Levels remain similar to where they were eight or nine years ago, Mercer says.

The aggregate funded ratio for US corporate pension funds increased slightly—about one percentage point—March, according to a report by Mercer. The ratio inched up to 83%, while the estimate aggregate deficit dropped to $391 billion as of the end of the month. It was $408 billion at the end of 2016.

“The current economic and political environment is making plan sponsors frustrated with the lack of progress on the funded status of their pension plans as levels remain similar to where they were eight or nine years ago,” said Jim Ritchie, a partner in Mercer’s wealth business. “Plan sponsors should consider re-evaluating their risk appetites in these uncertain times. Despite the Federal Reserve’s indications that short-term rates may steadily increase in the near future, there is still quite a bit of uncertainty on what will happen with long-term rates and equity markets, which are two main factors that affect the funded status of pension plans.”

The S&P 500 remained relatively flat month-over-month in March, while discount rates as measured by Mercer’s yield curve increased by eight basis points to 4.01%. 

“Those plan sponsors that are relying on long-term rates to rapidly rise in the near future may continue to be frustrated with the lack of progress on their funded status,” Ritchie said.  “Plan sponsors should look at multiple future economic conditions to get a good perspective on the future financial condition of their pension plans.” 

Mercer based its analysis on plans sponsored by companies listed in the S&P 1500.

By Amrita Sareen-Tak