United States
New York , 5 December 2011

The aggregate deficit in pension plans sponsored by S&P 1500 companies decreased by $80 billion during November, from a deficit of approximately $471 billion as of October 31, 2011, to $391 billion as of November 30, according to new figures from Mercer . This deficit corresponds to an aggregate funded ratio of 78% as of November 30, compared to a funded ratio of 75% at October 31, 2011 and 81% at December 31, 2010.

The increase in funded status was driven by an increase in yields on high quality corporate bonds during November. Equity markets ended the month strong despite earlier losses, resulting in a final loss for the month of only 0.2%. Discount rates for the typical US pension plan increased approximately 40 basis points during the month. Mercer’s analysis indicates the S&P 1500 funded status peaked at 88% at the end of April, and had fallen below 70% in early October, before rebounding the past two months.

“Even though discount rates moved somewhat higher during November, they are likely to be in excess of 40 basis points lower at the end of this year than they were at the end of 2010” said Kevin Armant, Principal in Mercer’s Financial Strategy Group. “Because equities have also underperformed expectations, corporations who use a December 31 measurement date will likely see larger pension liabilities on their balance sheet, as well as higher 2012 pension expense.” He also indicated that “It’s quite something to have falling interest rates and equity values come around to hit pension cost for the third time in the last 10 years. Plan sponsors need to position themselves to either bear the risk or take steps to mitigate the impact of these events that had been thought to occur much less frequently.”

“Plan sponsors also need to consider the impact of the falling interest rates and flat equity returns on 2012 contribution requirements” notes Craig Rosenthal, Partner in Mercer’s Retirement, Risk and Finance business. “We had already anticipated the potential for large contribution increases due to declining interest rates, but if we end the year end with equity markets where they were at the end of November there could be even higher contributions for 2012 and beyond than were previously anticipated.”

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  adjusted from each company’s financial year end to November 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 November 2011, changes to the S&P 1500 constituents and newly released financial disclosures, the estimated aggregate assets were $1.42 trillion, compared with the estimated aggregate liabilities of $1.81 trillion as of November 30, 2011.

Register for complimentary December 15 webcast on pension funding risk management
Jonathan Barry and Nick Davies of Mercer and Sam Knox of CFO Research Services will discuss results of a Mercer survey on pension funding risk management at a complimentary webcast December 15 at 3 p.m. Eastern time. Advance registration is required: http://www.mercer.com/webcasts/mercer-cfo-pension-risk-survey.    

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: www.mercer.com/pensiondiscount

About Mercer
Mercer is a global leader in human resource consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues by designing, implementing and administering health, retirement and other benefit programs. Mercer’s investment services include investment consulting, implemented 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 www.mercer.com.