S&P 1500 Face Record Year-End Pension Deficit

December 5, 2012 (PLANSPONSOR.com) The aggregate deficit in pension plans sponsored by S&P 1500 companies decreased by $12 billion during November.

This deficit dropped to $607 billion, according to new figures from Mercer, and corresponds to an aggregate funded ratio of 72% as of November 30, 2012. Funded ratios have rebounded slightly above the record low funded ratio of 70% seen at July 31, 2012, at which point the aggregate deficit was $689 billion. However, with December 31 right around the corner, it is likely that a record end of year deficit will be recorded as 2012 closes, Mercer said. The previous high for the year-end aggregate deficit was $484 billion on December 31, 2011.  

Equity markets gained approximately 0.6% during November, and discount rates were relatively flat during the month. The net effect was a reduction in the funding deficit. Mercer projects a significant increase in year-end balance sheet adjustments and profit and loss (P&L) expense for many plans for 2013 and beyond.  

“We don’t have any expectations of significant changes in interest rates over the next 30 days, and equity markets could be volatile due to uncertainty around the fiscal cliff,” said Jonathan Barry, a partner in Mercer’s Retirement Risk and Finance Group. “It is very likely that we will see these plans at the highest aggregate deficit since we have tracked this data. This will mean higher year-end balance sheet deficits and P&L expense for 2013.”