US - The aggregate deficit in pension plans sponsored by S&P 1500 companies increased by $37bn during May, figures from Mercer show.
The shortfall grew from about $209bn as of April 30 to $246bn as of May 31, ending an eight-month run of funded status improvements. The deficit corresponds to an aggregate funded ratio of 86% as of May 31, compared to a funded ratio of 88% at April 30.
The drop in funded status 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 US pension plan decreasing approximately 13-16 basis points during the month, Mercer said.
"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.
"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," Barry added.
Mercer Global Investments partner Richard McEvoy said: "We are seeing a growing number of pension plan sponsors looking to reduce funded status volatility and to ‘lock in' funded status gains as they occur.
"Dynamic asset allocation approaches that systematically reduce volatility as funded status improves are becoming more common. Other strategies that plan sponsors are considering include reducing the size of the plan by offering participants a lump-sum payment option and purchasing annuities for participants in pay status."
The top stories this week were the High Court's decision to block the £12bn annuity transfer from Prudential to Rothesay Life, and a separate court ruling that 'raises the bar' for pension rectification exercises.
Guaranteed minimum pension (GMP) equalisation has soared to the top of pension schemes' to-do lists, with 58% stating it is a priority project, research from Equiniti has revealed.
Professional Pensions is holding its defined contribution (DC) conference on 4 September.