US - Pension plans of S&P1500 companies are shouldering deficits of a combined $506bn, the largest recorded deficit in their history, according to data by Mercer.
The deficit translates to a funded status of 71% at the end of August, down from 84% at the start of the year. The shortfall is more than twice the 2009 deficit of $247bn, Mercer said.
Funding levels were crippled by falling equity markets coupled with low bond yields. The S&P500 was down 5% in August and AA bond yields used to discount liabilities were 4.94% at the end of August. Yields were the lowest they've been in a decade, Mercer said. Rates for high quality corporate bond yields have been on a steady decline since at least June 30 when they were 6.79%.
"If the low funded status persists until the end of 2010 when two-thirds of companies have their financial years end, net balance sheet liabilities and income statement expense for 2011 will increase significantly for many companies. Cash contributions will also need to increase to reduce the deficit," said Gordon Young, the integrated retirement financial management leader at Mercer.
"Some of this may be mitigated by various smoothing methods and pension funding relief, but nonetheless these market conditions will certainly grab the attention of plan sponsors," he said.
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