Liability-to-Market-Value Ratio Skyrockets for Eurozone Companies

Eurozone corporate pension deficits nearly doubled since 2007/8 as share of market value, according to Mercer.

(July 30, 2012) — Earnings have improved for major European multinationals since 2008, but pension funding hasn’t followed suit.

For 288 Eurostoxx600 companies with major liabilities, pension deficits accounted for 4.8% of total market capitalization in 2010/2011. That’s up from 2.9% just three years ago, according to analysts at Mercer, who dug through six years of annual reports and data to come up with the figures. 

Germany, in a rare worst-in-class showing, has the highest level of corporate pension deficit relative to market value, at 11.7%, followed by French companies at 7.7% and the United Kingdom at 3.1%.

Contributions have remained fairly stable-€46 billion in 2007/8 and €44 billion in 2010/11-but a nasty cocktail of external factors have caused liabilities to rise out of step with earnings.

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“Plan sponsors are suffering the burden of persistently low interest rates, volatile equity markets and rising life expectancies-exacerbated by the protracted economic downturn,” said Frank Oldham, Mercer’s Global Head of Defined Benefit Risk, in a statement.

As the deficits balloon, pensions become increasingly unwelcome distractions for CFOs-distractions, Mercer found, that most Eurozone multinationals hope to shed in the long term.

“DB pension plans sponsors across the globe are accelerating efforts to manage their pension risk and ultimately transfer it to external parties,” said Mercer Principal Julien Halfon in the statement. “However, this is a slow process and in the meantime, many companies still do not have proper oversight and governance of pension schemes risk.”

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