Corporate Pension Deficits Widen again in 2011

This deficit corresponds to an aggregate funded ratio of 75% as of December 31, 2011 compared to a funded ratio of 81% at December 31, 2010.   

The decrease in funded status in 2011 was primarily attributable to the increase in liabilities resulting from a decrease in discount rates during the year, Mercer said.  On the asset side, U.S. equity markets were up approximately 1% for the year, and there were strong returns on U.S. fixed income, with double digit returns for long maturity bonds. However, with less than 45% of pension plan assets generally invested in fixed income and often in shorter maturity bonds, these positive returns only had a small impact on overall funded status.  

“With U.S. and non-U.S. equity indices underperforming expectations and interest rates on high-quality corporate bonds declining upwards of 100 basis points, driving discount rates down and plan liabilities up significantly, we saw a marked decline in funded status.” said Jonathan Barry, a partner with Mercer’s Retirement Risk and Finance consulting group. “We also saw wide fluctuations in funded status through the year – with the aggregate funded status peaking at about 88% at the end of April, and hitting a low of 71% at the end of September – the largest month-end deficit we have ever seen since we began tracking this information.”