US - Large US pension plans fell into deficit by a further US$10bn during the second quarter of 2008 bringing the half-year total loss on assets and liabilities to over $80 billion, analysis by Mercer has revealed.
Adrian Hartshorn, a member of Mercer's financial strategy group, said: "We estimate the higher corporate bond yield has reduced the liability value by approximately $120bn, giving a net loss of $160bn."
Hartshorn added: "Since the credit crunch really started to hit home in October last year, asset losses in the pension plans of US companies have been about $280bn. However, companies must consider the assets and liabilities together."
He said many companies were seeking to reduce funded status volatility and were considering a move towards lower risk or liability-driven investment (LDI) strategies.
Mercer's analysis estimated next year's pension expense could be between 20% and 30% higher than in 2008 - assuming no change to financial markets - for a typical US company with a 31 December financial year end.
Hartshorn concluded: "At the same time as companies are seeing an increase in the cost of many of their raw materials, an additional increase in pension costs will be particularly unwelcome. For multi-national companies, this will mean looking not only at their US plans but also their non-US plans."
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