• Share
•  Delicious
•  Digg
•  Facebook
•  LinkedIn
•  Reddit
•  Twitter

Contact: Mercer Feedback

			E-mail this page				Print this page

United States
New York , 12 February 2009

As pension plan sponsors digest the impact of changes in the world’s financial markets over the last 12 months, the pension funded status of S&P 1500 companies at the end of January was unchanged from December, according to the latest estimates. According to Mercer, the funded status of pension plans sponsored by the largest US companies remained at 75 percent in January. However, the value of both pension assets and liabilities declined during the month, which reduced the dollar amount of the estimated aggregate deficit to $380 billion from $409 billion at the end of December.

As shown in Figure 1 , the pension funding position of S&P 1500 companies was unchanged in January after significant deterioration in 2008, particularly in the last quarter of the year.

“Discount rates increased during January, which reduced the value of pension plan liabilities. Asset values also declined. The lower value of assets combined with the lower value of liabilities means that the monetary amount of the deficit is slightly smaller compared to the end of December 2008. However, the ratio of assets to liabilities remains unchanged,“ said Adrian Hartshorn, a member of Mercer’s Financial Strategy Group, which helps companies manage financial risk in their retirement programs.

“The majority of US companies have their financial year-ends at December 31, so month-by-month changes have little direct impact. However, with the general market volatility it is important that corporate sponsors of defined benefit pension plans monitor the funded status regularly and understand the business impact of change,” said Mr. Hartshorn.

At December 31, 2007, the pension plans sponsored by companies in the S&P 1500 had an aggregate surplus of $60 billion and a funded status of 104 percent.

“What is clear from the last 12 months is that plan sponsors need to take the financial risk that is inherent in their pension plans seriously. Defined benefit pension plans are an important and highly valued part of employees’ reward packages. There is (and always has been) a tension that exists among cost, cost volatility and benefit security. Sponsors need to understand this dynamic and the trade-offs that exist,” said Mr. Hartshorn.

“We are now seeing sponsors take action. Plan sponsors are reevaluating the financial risks and their risk tolerance. Some are simply rebalancing assets, optimizing investment performance within current asset guidelines or altering the contribution policy to make good the deficit that has appeared in the last 12 months. However, some plan sponsors are making more significant changes to the strategic asset allocation, adopting a risk-reducing investment strategy, or changing plan design,” said Mr. Hartshorn.

Mercer estimates the total combined funded status position of plans operated by S&P 1500 companies on a monthly basis. Figure 1 shows the estimated surplus/deficit position and the funded status of all plans operated by companies in the S&P 1500 as reported in their financial statements. This includes US domestic qualified and non-qualified plans and all non-domestic plans. The figures provided in Figure 1 are estimates based on financial indices. The total value of pension plan assets at December 31, 2007, was $1.66 trillion, compared to the total value of the liabilities of $1.60 trillion. At December 31, 2008, the estimated assets had declined to $1.21 trillion, compared with estimated liabilities of $1.62 trillion. Allowing for changes in financial markets in January 2009, the estimated assets were $1.13 trillion, compared with the estimated value of the liabilities of $1.51 trillion.

Notes for editors

Unless otherwise stated, the calculations are based on the Financial Accounting Standard (FAS) funded position and include analysis of the S&P 1500 companies.

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

Figure 1.

Sample Data Points:

1 Assumed duration of 11 years. Based on Mercer Yield Curve.

E-mail this page

Print this page

Contact: Mercer Feedback