Strong Equity Performance No Help to Pension Plans

October 7, 2009 ( - Despite six consecutive months of positive U.S. equity performance, the funded status of pension plans sponsored by S&P 1500 companies declined from 84% to 81% over the past two quarters, according to the latest estimates by Mercer Investment Consulting, Inc.

A Mercer news release said the funded status of pension plans sponsored by S&P 1500 companies remained broadly unchanged during August, but was down from 82% to 81% over the third quarter and down from 84% since the end of March. The estimated aggregate deficit at the end of September was $300 billion, compared with $278 billion at the end of August and $245 billion at the end of June, accordin to Mercer.

The 2008 year-end deficit was $409 billion, corresponding to a funded status of 75%. The Mercer analysis also shows that if the funded status were to remain unchanged through the fourth quarter, the 2010 pension expense for S&P 1500 companies will be $41 billion – lower than the pension expense reported in 2009 financial statements, estimated to be around $55 billion, but still substantially higher than the 2008 reported pension expense of $21.7 billion.

Additionally, Mercer anticipates that many plan sponsors will face a substantial increase in their required cash contributions for 2010.

“As we move into the final quarter of the year, many companies will be finalizing budgets for 2010. Unless the financial position of pension plans improves during the last quarter this will be the second consecutive year that company balance sheets will reflect substantial pension plan deficits. Additionally 2010 pension expense figures, which that are calculated based on the year-end 2009 balance sheet position, again will be high compared to recent history,” said Adrian Hartshorn, a member of Mercer’s Financial Strategy Group, in the news release.