The pension deficit among major U.S. companies is expected to reach $129 billion by the end of the year, up 65% from last year, unless contributions increase or market conditions improve, according to an Aon Consulting report.
In comparison, the deficit held by 200 of the largest U.K. companies is expected to remain unchanged at just less than £70 billion ($122.2 billion), according to the report.
Factors contributing to the increased pension deficit for U.S. companies include a 9-basis-point drop in the discount rate, which increased pension liabilities by 1.5%; lower-than-expected investment returns from stocks and bonds; and reduced corporate contributions.
"Interest rates are still down for the year, that's one thing," said Brad Klinck, senior vice president with Aon Consulting in the United States. "The second thing is that investment returns are lower than expected. Finally, contributions are lower this year than in other years."
Interest rates could rise between now and the end of the year and financial markets could rally, both of which would reduce pension deficits, he said. However, because of uncertainty over pension reform legislation and potential pension accounting changes, companies have been hesitant to increase contributions for fear they will get penalized under any new rules, he added.
Discount rates in the United Kingdom have fallen this year, increasing corporate pension liabilities by nearly 10%, but that has been offset by a 10% increase in pension plan assets, according to Aon Consulting.
The report was based on information from 80 Fortune 100 companies that sponsor defined benefit plans and for which information was available in company annual reports. U.K. data on was based on information of 200 of the largest U.K. companies, including all those in the FTSE 100.