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Corporate Pensions Point Toward October’s Pessimism

Funding rises experienced in September were virtually erased last month for the coterie of corporate pensions currently being tracked by global human resource consulting firm Mercer.

According to new data, the Marsh & McLennan subsidiary said Monday that retirement plans for companies within the S&P 1500 reported an aggregate funded ratio of 72% and more than $619 billion in deficits as of Oct. 31.

These figures trail favorable numbers recorded when September closed. Mercer said Oct. 2 that pensions were situated at about a 73% aggregate funded ratio, where the aggregate deficit dropped to $593 billion thanks to a three percentage point increase in U.S. and international equity and flat discount rates.

However, on Nov.5, the firm listed that “the combination of equity markets dropping approximately 2% during October and discount rates falling about six basis points” proved to increase deficits for the pension group.

Collectively, the funds maintained about $1.57 trillion in assets versus about $2.19 trillion in aggregate liabilities, Mercer listed. 

“Interest rates remain stubbornly low, with little prospects for a significant increase before year end” Richard McEvoy, leader of Mercer’s Financial Strategy Group, said today. “It is now likely that many plan sponsors will be facing significant pension deficits at the end of this calendar year.”

Previously, better times were seen in August when deficit reductions were seen as a result of the two percentage point in the nation’s equity sector as well as with the 12-14 basis point bump up in discount rates. The pool reported the same as aggregate funded ratio posted at the close of October.

Jonathan Barry, a partner in Mercer’s retirement risk and finance consulting group, admitted the monthly period’s good news was not the final answer.

“…The overall deficit is still troubling,” Barry commented. “If these deficits persist through year end, plan sponsors will be looking at higher year end balance sheet deficits, cash contributions and P&L expense for 2013.”

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