Falling discount rates put pressure on biggest pensions in April

A decrease in discount rates caused pension plan funding levels among large employers to dip in April, according to a report released Wednesday by Mercer L.L.C.

The estimated aggregate funding deficit in pension plans sponsored by S&P 1500 companies jumped to $504 billion as of April 30, up from $492 billion at the end of March.

On average, pension plans were 78% funded at the end of April, compared with 79% at the end of March.

“After a rough first quarter of 2016, April continued the trend of declining funded status,” Matt McDaniel, a partner in Mercer’s retirement business, said in the statement. “Long term interest rates continue to fall in spite of the Fed’s rate hike last year. However, this presents some compelling savings opportunities for plan sponsors making lump sum payouts. With rates down 50 basis points from last fall, plans paying lump sums in 2016 can book gains when using the IRS-prescribed rates. However, this window of opportunity is closing, and plan sponsors will need to move quickly to take advantage.”

At the end of April, the plans had $1.82 trillion in assets and $2.33 trillion in liabilities.