Pension funding levels among large employers rebounded slightly in November, though analysts predict year-end funding gaps could be the largest ever recorded, according to a Mercer L.L.C. report released on Dec. 5.
The aggregate funding deficit in pension plans sponsored by S&P 1500 employers narrowed to $607 billion in November, down $12 billion from the $619 billion deficit recorded in October. The gap represents an aggregate funded ratio of 72 percent, unchanged from October and slightly above the record low 70 percent funded ratio recorded in July.
In the report, Mercer analysts said the slight improvement witnessed in November was due largely to modest equity market gains and discount rates remaining relatively flat through the month.
Uncertainty around fiscal cliff
Despite November's gains, analysts said the year-end aggregate deficit was likely to be highest on record since Mercer began tracking pension funding among S&P 1500 firms in 2007, having already grown by $124 billion over the $484 billion gap recorded at the end of 2011.
Jonathan Barry, a Boston, Massachusetts-based partner in Mercer's retirement risk and finance group, said it was unclear whether employer gains made in November could be continued into the final month of the year, especially given fluctuations in equity markets pinned to tense negotiations over the federal budget.
"We don't have any expectations of significant changes in interest rates over the next 30 days, and equity markets could be volatile due to uncertainty around the fiscal cliff," Barry said in a statement from Mercer. "It is very likely that we will see these plans at the highest aggregate deficit since we have tracked this data. This will mean higher year-end balance sheet deficits and pensions and liabilities expense for 2013."
Mercer's report estimated the aggregate value of S&P 1500-sponsored plan assets at $1.59 trillion through Nov. 30, compared with an estimated aggregate liability of $2.19 trillion.