The pension status of S&P 500 companies improved significantly last year as a result of the bull market, according to Standard and Poor’s.

The preliminary review of the 2006 Pensions & Other Post Employment Benefits Report—to be released in June—shows that defined benefit plans were US$36.4 billion underfunded for 2006, a considerable improvement from the $140.4 billion underfunded position of 2005.

Funding improved to 97.5% last year from 90.4% in 2005, but remains far below the 128.2% level in 1999. Fully funded plans increased to 82 in 2006 from 47 in the previous year.

“At this point, pensions are expected to improve in both their funding status and evaluation ratios,” says Howard Silverblatt, senior index analyst at S&P and author of the report. “Based on our projections, we expect to see 2007 pensions to be fully funded on an aggregate basis by year-end.”

However, the situation for other post employment benefits(OPEB)is not as bright. Within the index, 307 firms had OPEB obligations and only four of those companies were fully funded.

OPEB obligations were underfunded by $292.2 billion last year, a slight improvement from 2005’s $320.9 billion in underfunding. Funding status improved to 24.0% in 2006 from 22.1% in the previous year.

Companies have continued to reduce benefits by capping their annual contribution, he says. “As a post-retirement benefit, medical coverage now has to be put on the endangered species list.”

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