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Funded Status of Pension Plans Falls for Second Year: Mercer

In the aggregate, the plans' funding deficit hit $484 billion as of Dec. 31, 2011, up from $315 billion a year earlier and $229 billion as of Dec. 31, 2009.

January 4, 2012
Related Topics: Top Stories - Frontpage, Unions, Finance/Taxes, Defined Benefit Plans, Retirement/Pensions, Retirement Planning, Benefits, Latest News

For the second consecutive year, the funded status of pension plans sponsored by large employers has dropped, according to an analysis released Jan. 4.

On average, pension plans sponsored by companies in the S&P 1500 were 75 percent funded at year-end 2011, according to Mercer L.L.C. of New York. That's down from year-end 2010, when plans were an average of 81 percent funded; and year-end 2009, when plans on average were 84 percent funded.

In the aggregate, the plans' funding deficit hit $484 billion as of Dec. 31, 2011, up from $315 billion a year earlier and $229 billion as of Dec. 31, 2009.

The drop in plans' funding status was largely fueled by the decline in interest rates, which drove up the value of plan liabilities, Mercer executives say.

"With U.S. and non-U.S. equity indices underperforming expectations and interest rates on high-quality corporate bonds declining upwards of 100 basis points, driving discount rates down and plan liabilities up significantly, we saw a marked decline in funded status," Jonathan Barry, a partner with Mercer's Retirement Risk and Finance Group in Boston, said in a statement.

The damage to plans' funding levels would have been even greater had it not been for the roughly $50 billion in contributions employers disclosed that they expected to make to their plans in 2011.

"Many plan sponsors are merely treading water, or even moving backward on funded status, despite significant cash contributions to their plans," Barry said.

And for 2012, the deterioration in plan funding will mean big increases in how much they are required to contribute to their plans, Mercer said.

While plans' funded status slumped in 2011, funding levels were extraordinarily volatile during the year. The aggregate funded status peaked at about 88% at the end of April, only to fall to 71% at the end of September, which was the biggest month-end deficit since Mercer began to track such information.

The Mercer study is based on the 721 companies in the S&P 1500 that sponsor defined benefit plans with enough data for analysis.

Jerry Geisel writes for Business Insurance, a sister publication of Workforce Management. To comment, email

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