How does your retirement program stack up? – 2008, provides total and industry group benchmark data that encompasses the three policy levers of Mercer’s Integrated Retirement Financial Management (iRFM) framework – design, contributions and investment. Employers can use this information as a governance tool to evaluate the performance of their own plans relative to their business and financial objectives.

Summary of key findings

• The median pension funded status continued to improve, increasing to 94 percent at fiscal year end (FYE) 2007 from 89 percent at FYE 2006. Aggregate S&P 500 pension assets exceeded total pension liabilities for the first time since 2001.

• Current pension funded status does not appear to be a significant driver of most companies’ market valuations or performance, with median after-tax deficits now less than 6 percent of cash flow from operations or 0.2 percent of market capitalization. Pension assets are 8.8 percent of total corporate assets at the median for all companies in the survey, with the materials sector at a high of 26.5 percent and the financial sector at a low of 1.1 percent.

• Plan sponsors continue to take investment risk with their pension portfolios. But actual asset returns during FY2007 outpaced both the expected return assumption (9.6 percent vs. 8.25 percent) and the liability return (9.6 percent vs. 3.3 percent) at the median – although less than the actual FY2006 asset returns of 13.3 percent at the median.

• Total FYE 2007 contributions equaled the value of benefits earned and did not significantly add to funded status. For US pension plans, pension assets exceed the accumulated benefit obligation, suggesting that many plan sponsors may not be required to fund any more than their normal cost in FY2008, the first year that the new funding rules of the Pension Protection Act of 2006 apply.

• While most employers are still providing ongoing defined benefit (DB) pension accruals, many of the most generous pension and postretirement medical plans have been scaled back, without an offsetting increase in median DC plan costs, resulting in a slight decrease in ongoing benefit costs.

• On average, companies that provide ongoing DB pensions provide slightly higher total retirement benefits (and thus have slightly higher retirement program costs). However, this does not take into account other benefits or compensation that might be provided in lieu of retirement benefits.

About the survey

Each year, Mercer reviews the retirement programs sponsored by the companies in the S&P 500, primarily using information reported in 10-K filings. The 2008 survey covers fiscal years ending from February 2007 through January 2008. Of the 500 companies included in our survey, 377 sponsor a defined benefit (DB) pension plan, 472 sponsor a defined contribution (DC) plan and 335 sponsor a postretirement medical and life insurance (PRM) plan. Total reported pension obligations for the 377 companies that sponsor a pension plan are $1.50 trillion, compared with total reported assets of $1.56 trillion.