Mercer analysts report that funding levels of pension plans sponsored by S&P 1500 companies remained stable during the month of October, with a funded ratio (assets divided by liabilities) of 91% at the end of the month, equal to a month ago when it reached the highest level seen since October 2008. This funded ratio corresponds to a deficit of $185 billion as of October 31, 2013, up slightly from $182 billion a month ago, according to Mercer. This is a significant reduction from the estimated deficit of $557 billion as of December 31, 2012.

 Despite intra-month volatility in both the equity markets and interest rates due to the government shutdown and threats to not raise the debt ceiling, equity markets saw gains during the month with the S&P 500 index increasing 4.5%. Yields on high grade corporate bond rates (which are used to measure liabilities) fell after congress passed the bill to raise the debt ceiling. The month ended with bond yields lower than the end of September, with the Mercer Yield Curve discount rate for mature pension plans falling from 4.58% to 4.45%, but still up 74 basis points year-to-date. 

 “As we close in on year end for many sponsors, this funded status improvement is very encouraging,” said Jonathan Barry, a Partner in Mercer’s Retirement business. “We are seeing many sponsors take advantage of this improvement as they plan to lessen the risk in their plan either through LDI or risk transfer strategies. We expect to see significant activity in these areas in 2014.”

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