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By Matthew Quinn
Last year's stock market rally helped repair the funding levels of U.S. corporate pension plans, adding $180 billion to companies' balance sheets, according to a report released by Mercer on Tuesday.
The consultancy said U.S. pension funds were 85 percent funded at the end of December compared with 75 percent a year earlier.
Mercer found that plans sponsored by S&P 1500 companies had a deficit of $229 billion at the end of 2009 compared with their liabilities over 10 years. The deficit hit a then record of $409 billion at the end of 2008, compared to a surplus of $60 billion at year-end 2007.
"The improved funded status will add $180 billion to the balance sheets of U.S. companies, which, over time will improve earnings and reduce the need for future cash contributions," Adrian Hartshorn, a member of Mercer's financial strategy group, said in a press release.
Plans, of course, were buoyed by the surging stock markets. The S&P 500 ended 2009 up 67 percent from its March low and more than 23 percent for the full year.
But Mercer warned that such heavy investment in equities can be dangerous for plans given that they are volatile and have a low correlation to changes in the value of a plan's long-term liabilities.
Of course, bonds and their current low yields likely won't provide enough return to close a plan's deficit.
According to Mercer, the last time U.S. pension funds were in surplus was May 2008, meaning they have posted 19 consecutive months of deficits.
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