According to Mercer, the deficit increase from $209 billion as of April 30 to $246 billion as of May 31, the first since August 2010, ends a consecutive eight-month streak of funded status improvements. The loss of $37 billion effectively wipes out the gains seen in March and April.
The drop in funded status, claims Mercer, was driven by a combination of equity losses of over 1% and a decrease in yields on high quality corporate bonds, with the discount rate for the typical U.S. pension plan decreasing approximately 13–16 basis points during the month.
“The volatility that we have seen in the funded status, and the potential for setbacks like we observed in May, are not unexpected,” said Jonathan Barry, a partner with Mercer’s Retirement Risk and Finance group, in a news release. “With this level of negative outcomes a possibility, it’s important for plan sponsors to proactively look at their financial management polices and determine whether they remain appropriate, especially in light of the improvements in funded status we have seen prior to May.”