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Pension Plans Take a Beating

Continued decline in plan funding suggests more companies will back away from pensions. (Jonathan Barry of Mercer)

By Susan Kelly | Updated on August 30, 2012
Jonathan Barry of MercerThe funded status of traditional pension plans has deteriorated again this year, leaving companies that sponsor plans with quite a hole to climb out of in coming years and suggesting more companies will freeze or close such plans.

“2012 so far has been a difficult year for pension plan sponsors,” says Jonathan Barry, who leads Mercer’s defined-benefit risk consulting efforts for its U.S. retirement risk and finance business. “Even though we’ve had decent equity returns for the year, interest rates have dropped so much that the majority of U.S. pension funds’ funded status has declined.”

Mercer calculates the aggregate deficit of defined-benefit pension plans operated by S&P 1500 companies totaled $689 billion at the end of July, up almost $200 billion from the shortfall at the end of last year. It estimates the plans’ aggregate funded ratio has fallen to 70%, down from 75% at the end of 2011 and 81% at the end of 2010.

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