Having finished 2012 with their highest year-end pension deficits ever, S&P 1500 retirement plan sponsors are feeling greater financial pressure and will report decreased earnings in 2013, according to data published Thursday by Mercer Investment Consulting.
Falling interest rates were the cause of pension plans' losses despite overall annual asset growth of approximately 16% in the U.S. stock market. Discount rates fell by more than 80 basis points compared with year-end 2011, Mercer reported.
"Despite U.S. and non-U.S. equity indices outperforming expectations," said Jonathan Barry, a partner with Mercer's Retirement consulting group, in a statement, "interest rates on high quality corporate bonds declined by more than 80 basis points in the calendar year, driving discount rates down and plan liabilities up significantly, with the overall result a significant decline in funded status for most plans."
The deficit in plans sponsored by S&P 1500 companies increased by $73 billion to a record high of $557 billion as of Dec. 31, according to Mercer, compared with a deficit of $484 billion on Dec. 31, 2011.
"We also saw wide fluctuations in funded status through the year," Barry said, "with the aggregate funded status peaking at about 82% at the end of March, and hitting a low of 70% at the end of July, the largest month-end deficit we have seen since we began tracking this information."
