Large corporations' pension plan funding levels continue to drop
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The continuing fall in the equity markets and declining interest rates have eroded the funding levels of large corporate pension plans significantly, according to a Mercer L.L.C. analysis.
The average funding level of pension plans sponsored by companies in the S&P 1500 fell to 72% as of Sept. 30, down from 79% at the end of August, Mercer said Tuesday.
That's a drop of 16 percentage points from this year's peak funded status, set in April when plans had an average funded ratio of 88%. Pension plan funding levels haven't been this low since Aug. 31, 2010, when the average funding level was 71%.
On an aggregate basis, plans sponsored by S&P 1500 companies were underfunded by a record $512 billion at the end of September, a $134 billion increase from Aug. 31, and topping the prior record of $507 billion set on Aug. 31, 2010, according to Mercer.
“The end of September marks the largest deficit since we have been tracking this information,” said Jonathan Barry, a partner with Mercer's retirement risk and finance group in Boston, in statement.
“Over the past three months, we have seen nearly $300 billion of funded status erode. This will have significant consequences for plan sponsors,” he added.
For example, when plans' funded levels fall below 60%, benefit accruals are frozen.
At the end of 2010, plans sponsored by S&P 1500 companies were an average of 81% funded, Mercer reported.
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