S&P 1500 companies' defined benefit pension plans had declining funding ratios in 2011, spurred by declining interest rates and lower-than-expected returns that were only partially offset by a combined $70 billion in pension contributions, according to a report from Mercer released Monday.
While the median asset return for plans was 2.9% in 2011, down from 12.1% in 2010 and 18.6% in 2009, the median pension liability in 2011 increased by 13.7%, according to the report, “How Does Your Retirement Program Stack Up 2012,” which analyzed the latest 10-K reports of S&P 1500 companies.
The key driver of the liability increase was the decline in the median discount rate in 2011, to 4.75% from 5.4% in 2010.
“I think the big issue is the idea that interest rates play a big deal when it comes to pension risk even in flat or slightly positive asset years,” said Eric Veletzos, principal and consulting actuary with Mercer's retirement, risk and finance business, in a telephone interview. “Funded status deteriorated significantly.”
