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04

US pension plan deficits 'have fallen 30% so far in 2013'

Open-access content Wednesday 3rd April 2013 — updated 5.13pm, Wednesday 29th April 2020

The combined deficit of the pension plans run by US companies listed on the S&P 1500 index has fallen by $185bn since the turn of the year, according to figures published by Mercer today.

2

The consultancy's data shows that, at the end of March, the aggregate deficit of the plans stood at $372bn, compared to the deficit of $557bn at the end of December, which was a record for the year end.

Last month in particular saw a major improvement in pension plan funding, with deficits improving by $107bn. Plans' funded ratio - the value of their assets divided by the value of their liabilities - ended March at 82%, compared to 77% at the end of February and 74% at the end of 2012.

Mercer explained that March's improvement was driven by gains of 3.75% on the value of equities on the S&P index, while the high quality corporate bond rates which affect liabilities increased slightly. In total, plan assets were worth an estimated $1.68 trillion, while liabilities were worth an estimated $2.05trn.

Assets also grew because of contributions, with S&P 1500 plan sponsors contributing over $80bn to their plans over the course of 2012. This was $20bn more than they had expected at this time last year despite the enactment of the Moving Ahead for Progress in the 21st Century Act, or MAP-21, which enabled sponsors to lower their contributions to pension plans.

Jonathan Barry, a partner in Mercer's retirement business, said: 'Certainly the funded status improvement we saw in the first quarter is a great outcome for most plan sponsors

'However, there is still some heavy lifting for plan sponsors to do to get to a fully funded position. Also, we saw a similar pattern in 2011 and 2012, where funded status improved significantly in the first quarter, only to see those gains reverse themselves as the year went on.'

Richard McEvoy, a partner in the consultancy's investment business, added: 'We saw many glide path clients that measure funded status daily execute de-risking triggers in the first quarter. These nimble changes to lower risk positions highlight the benefit of having a pre-agreed plan with a supporting execution process in place.'

This article appeared in our April 2013 issue of The Actuary.
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