Roller-coaster ride for US corporate plan funding

While US corporate pension funds enjoyed their best month this year, in September, they remain chronically under-funded, according to the latest figures from Mercer Investment Consulting.

Largely thanks to an average return of 9 per cent from equity markets, the funding deficits of S&P 1500 company plan sponsors declined by a total of US$79 billion during September. However, they still stood at an aggregate of $428 billion at the end of the month.

In the past six months, the average corporate fund has been on a roller-coaster ride with its funding status and concerns remaining, with only three months to go before most plan sponsors have to do their next measurements.

Gordon Young, Mercer’s head of ‘integrated retirement financial management’ in the US, said that the aggregate funded status of US pension plans had moved 18 percentage points in the past six months – down from 84 per cent last December, to 71 per cent in August, and back up to 76 per cent last moth.

Following the good equity market rises enjoyed by most funds in September, there was continued concern about market volatility for the fourth quarter, he said.

Pension fund liabilities are valued using AA-rated bond yields, so the slightly higher yields translate into slightly lower plan liabilities, boosting the funds’ positions further.

Mercer points out that in an environment of increased funded status volatility, more importance needs to be placed on governance processes that allow investment committees to implement asset allocation changes effectively and efficiently.