Aggregate Pension Plan Deficit Grows in May

June 4, 2012 ( – Pension plan funding gains in the first quarter were wiped out in April and May, according to a report from Mercer.

 The aggregate deficit in pension plans sponsored by S&P 1500 companies increased $80 billion during May, to $488 billion. This deficit corresponds to an aggregate funded ratio of 76% as of May 31, compared with a funded ratio of 79% as of April 30, and just barely above the funded ratio from 75% at December 31, 2011.

Mercer attributes the decrease in funding status to the falling equity markets and an increase in liabilities because of declining interest rates. Interest rates on high quality corporate bonds, which are used to measure the pension liability, fell 10 to 15 basis points during the month, as measured by the Mercer Pension Discount Yield Curve. The yield curve hit an all time low driving the aggregate S&P 1500 liability in excess of $2 trillion for the first time. U.S. equity markets fell 6% during May as measured by the S&P 500 total return index.

Plan sponsors who hedged their liability by holding a higher allocation in long duration bonds would have seen better asset performance during the month.