This deficit corresponds to an aggregate funded ratio of 72% as of August 31, 2012, compared to a funded ratio of 70% as of July 31, 2012, at which point the aggregate deficit was $689 billion.
The combination of U.S. equity markets rising over 2% during August and discount rates rising between 12 and 14 basis points helped spur the rebound. Rates had been at a record low at the end of July.
“Finally there is a bit of positive news after several months of setbacks,” said Jonathan Barry, a partner in Mercer’s Retirement Risk and Finance consulting group. “However, the overall deficit is still troubling. If these deficits persist through year end, plan sponsors will be looking at higher year-end balance sheet deficits, cash contributions and P&L expense for 2013.” Market volatility and the implications of pension risk to reported earnings and balance sheet positions continue to be a concern to many plan sponsors, Barry noted. “Among the strategies to control the impact of market fluctuations on funded status are dynamic investment policies, liability-driven investing and other risk management strategies which mitigate the risk of a decline in funded status. Furthermore, we are seeing increased interest in risk transfer strategies, such as lump-sum cash-outs and annuitization, as ways to manage pension risk,” he said.