Mercer Shows S&P 1500 Company Pension Deficits Shrink to $359 Billion

(December 9, 2010) — A new study by Mercer shows deficits in S&P 1500 company pension plans dropped by $14 billion to $359 billion at the end of November.

The figures, according to Mercer, reflect a need for a better understanding of the risk factors that fuel funded status volatility and in 2010, while asset returns were generally positive, the drop in interest rates means that most plans will end the year with a decline in funded status. Consequently, Mercer expects that many plan sponsors will have to make much larger contributions in the 2011 plan year.

Meanwhile, the consulting firm found the aggregate assets of the S&P 1500 companies was $1.33 trillion at the end of November, with liabilities of $1.69 trillion. This compares with assets of $1.25 trillion and liabilities of $1.50 trillion in December 2009.

“If interest rates and equity markets do not change significantly over the next month, most companies will report a higher pension deficit than they did at December 31, 2009 – a direct charge to the balance sheet,” Kevin Armant, a senior consultant within Mercer’s financial strategy group told Global Pensions. “Generally speaking, this will also drive higher cash contributions and P&L expense for 2011, factors sponsors should incorporate into their budgeting for next year,” he said, adding that while asset returns have been better than expected through the first 11 months of 2010, the funded status for most plans is still lower than it was at the end of 2009 as a result of declining interest rates.