Companies are pouring cash into their defined benefit pension plans to keep them funded at a bare-bones minimum while still toying with whether to flush pent-up losses through old earnings.

Recent analyses by consulting firms Milliman and Mercer suggest companies that still sponsor defined benefit pension plans are showing modest improvements in overall funding levels due to their own cash contributions and some recovery in equity markets. Milliman's study of the 100 largest defined benefit plans in the United States shows asset returns of 12.8 percent in 2010, offset by liability increases of 7.7 percent as a result of declining discount rates. The firm said companies contributed almost $60 billion in cash to keep plans funded at minimum required levels.

Mercer's monthly tracking of pension plans sponsored by the Standard & Poor's 1500 shows an improvement in the aggregate funded ratio from 81 percent in December to 85 percent at the end of February. The firm noted six straight months of meager improvement in funding levels, attributing them to positive equity market returns that weren't completely gouged by the decline in discount rates.

The bad news, says Mercer partner Jonathan Barry, is companies still have some work to do to recover from the 2008 rout. “On the one hand, they've improved quite a bit in the past six months,” he says. “On the other hand, they've hardly moved anywhere in the last three years. There's been a lot of volatility – and lot of up and down – but these plans have stayed more or less in the same spot despite pretty significant funding.”

Current accounting rules allow companies to smooth over big swings in pension gains and losses by deferring those gains or losses into future periods to minimize the volatility to  current earnings. A handful of major companies – including Honeywell, AT&T, IBM, General Electric, AK Steel and NCR – have adopted changes in accounting policy to speed the recognition of losses rather than allowing them to carry well into the future and bleed future earnings. The Securities and Exchange Commission hasn't publicly commented on the trend, but pension experts expect other companies to follow suit if the SEC doesn't object.

During a recent PwC webcast, the firm polled participants to get a sense for how appealing the idea might be to other companies. Only half of the participants had a defined benefit plan where the change in accounting policy might apply; 19 percent of participants said they were considering a change in accounting policy to hasten the recognition of losses while 17 percent said they had considered and dismissed the idea.

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