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3.0 from 119 votes

US pension plans experience funded status setback in May

Date: June 7 2011

New York, June 7, 2011
The aggregate deficit in pension plans sponsored by S&P 1500 companies increased by $37 billion during May, from a deficit of approximately $209 billion as of April 30, 2011, to $246 billion as of May 31, according to new figures from Mercer[1]. This deficit corresponds to an aggregate funded ratio of 86% as of May 31, compared to a funded ratio of 88% at April 30, 2011. The deficit increased for the first time since August 2010, ending a streak a eight consecutive months of funded status improvements.   The $37B loss in May mostly eliminated gains seen in March and April.
The drop in funded status was driven by a combination of equity losses of over 1% and a decrease in yields on high quality corporate bonds, with the discount rate for the typical US pension plan decreasing approximately 13-16 basis points during the month.
“The volatility that we have seen in the funded status, and the potential for setbacks like we observed in May, are not unexpected” said Jonathan Barry, a partner with Mercer’s Retirement Risk and Finance group. Based on analysis in Mercer’s recently released “How does your retirement plan stack up? – 2011, the potential increase in the deficit in any given month, as estimated by the value-at-risk (VaR)[2] for the S&P 1500, is approximately $113. “With this level of negative outcomes a possibility, it’s important for plan sponsors to proactively look at their financial management polices and determine whether they remain appropriate, especially in light of the improvements in funded status we have seen prior to May.”
“We are seeing a growing number of pension plan sponsors looking to reduce funded status volatility and to “lock in” funded status gains as they occur ” said Richard McEvoy, a partner with Mercer Global Investments.   “Dynamic asset allocation approaches that systematically reduce volatility as funded status improves are becoming more common. Other strategies that plan sponsors are considering include reducing the size of the plan by offering participants a lump-sum payment option and purchasing annuities for participants in pay status.” 
Mercer estimates the aggregate combined funded status position of plans operated by S&P 1500 companies on a monthly basis. Figure 1 shows the estimated aggregate surplus/(deficit) position and the funded status of all plans operated by companies in the S&P 1500. This is based on projections of their reported financial statements[3] adjusted from each company’s financial year end to April 30 in line with financial indices. This includes US domestic qualified and non-qualified plans and all non-domestic plans. The estimated aggregate value of pension plan assets of the S&P 1500 companies at December 31, 2010, was $1.37 trillion, compared with estimated aggregate liabilities of $1.68 trillion. Allowing for changes in financial markets though the end of April 2011, changes to the S&P 1500 constituents and newly released financial disclosures, the estimated aggregate assets were $1.47 trillion, compared with the estimated aggregate liabilities of $1.72 trillion as of April 30, 2011.
Notes for Editors
Unless otherwise stated, the calculations are based on the Financial Accounting Standard (FAS) funding position and include analysis of the S&P 1500 companies.
Information on the Mercer Yield Curve is available at:
About Mercer
Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercer’s investment services include investment consulting and multi-manager investment management. Mercer’s 20,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York and Chicago stock exchanges. For more information, visit

[1]Figures provided by Mercer Investment Consulting, Inc.
[2] VaR is a measure of the potential loss in funded status with a 5% likelihood.
[3]Source of Financial Statement Data: Capital IQ, a Standard & Poor's business. Standard and Poor’s is a division of The McGraw-Hill Companies, Inc.


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