US - Deficits in S&P 1500 company pension plans fell by $14bn to $359bn at the end of November, new figures from Mercer show.
This shortfall corresponds to a funded status of 79%, compared to a funded status of 78% at the end of October and 84% on December 31, 2009, the consultant said.
Mercer also found the aggregate assets of the S&P 1500 companies was $1.33trn at the end of November, with liabilities of $1.69trn. This compares with assets of $1.25trn and liabilities of $1.50trn in December 2009.
Equity markets were flat during November after returning 9% in September and 4% in October, while yields on long maturity AA bonds, which declined to historic lows as of the end of August, rose for the third straight month, increasing by approximately 10 basis points in November.
Because pension plan liabilities are valued using similar AA bond yields, the result was generally higher discount rates and lower liabilities for most plans as of the end of November, Mercer said
Kevin Armant, a senior consultant within Mercer's financial strategy group said: "Even though asset returns have been better than expected through the first 11 months of 2010, the funded status for most plans is still lower than it was at the end of last year due to the decline in interest rates.
"If interest rates and equity markets do not change significantly over the next month, most companies will report a higher pension deficit than they did at December 31, 2009 - a direct charge to the balance sheet. Generally speaking, this will also drive higher cash contributions and P&L expense for 2011, factors sponsors should incorporate into their budgeting for next year.
"Some plan sponsors may be surprised that better than expected asset returns did not improve the funded status. This highlights the need for a better understanding of the risk factors that contribute to funded status volatility and the strategies for mitigation that are being considered in today's low interest rate environment."
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