Bond yields aid pension plan funded status as equities falter

New York, 5 November 2009
After a run of seven consecutive months of positive US equity performance, equities returned negative 1.9 percent in October. However, an increase in AA bond yields resulted in the funded status of pension plans sponsored by S&P 1500 companies remaining broadly unchanged in October, according to the latest estimates by Mercer Investment Consulting, Inc. (Mercer).

According to Mercer’s analysis, the funded status of pension plans sponsored by S&P 1500 companies remained flat at 80 percent (deficit of $307 billion) in October. The 2008 year-end deficit was $409 billion, corresponding to a funded status of 75 percent.

“Based on the latest figures, we are anticipating a 2010 pension expense for the S&P 1500 companies of around $40 billion, compared to the 2008 reported pension expense of $21.7 billion,” said Adrian Hartshorn, a member of Mercer’s Financial Strategy Group, which helps companies manage financial risk in their retirement programs.

“Companies will also need to plan for higher cash contributions. Contribution requirements are determined under the Pension Protection Act. Despite the somewhat greater flexibility over the timing of contributions granted by legislative and regulatory relief, fundamentally pension plans are still underfunded and there will be a phasing in of increased contribution requirements to fund the deficits. This also comes at a time when we expect that plans will have little or no credit balances available to help pay these contributions,” said Mr. Hartshorn.

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 based on projections of their reported financial statements adjusted from each company’s financial year end to October 31, 2009 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, 2008, was $1.21 trillion, compared with estimated aggregate liabilities of $1.62 trillion. Allowing for changes in financial markets in 2009 year-to-date, the estimated aggregate assets were $1.21 trillion, compared with the estimated value of the aggregate liabilities of $1.52 trillion.

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 18,000 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, Chicago and London stock exchanges. For more information, visit www.mercer.com.

The HR industry´s premier online community and resource for Human Resource professionals: HR, human resources, HR community, human resources community, HR best practices, best practices in human resources, online communities for HR, HR articles, HR news, human resources articles, human resources news, HR events, leadership, performance management, staffing and recruitment, benefits, compensation, staffing, recruitment, workforce acquisition, human capital management, HR management, human resources management, HR metrics and measurement, organizational development, executive coaching, HR law, employment law, labor relations, hiring employees, HR outsourcing, human resources outsourcing, training and development
hr.com. human resources management resources for hr professionals. | HR menus | HR events | HR Sitemap