2012 Another Challenging Year for U.S. Pensions

The overall financial health of U.S. corporate defined benefit (DB) pension plans declined in 2011, and 2012 looks challenging as well, according to analysis by Mercer.

The funded status of pension plans sponsored by companies in the S&P 1500 declined from 81% at December 31, 2010, to 75% at December 31, 2011. Funded status continued to decline in 2012, as these plans hit a record low of 70% as of July 31, representing a shortfall of $689 billion.  

In the report “How Does Your Retirement Program Stack Up? – 2012,” Mercer presents an in-depth analysis of retirement program data disclosed by the S&P 1500 companies in their 10-K reports for 2011. This analysis supplements Mercer’s monthly update of funded status of these plans and enables companies to better understand how pension costs affect their overall cost structures, risk profiles and competitive positions.  

“While large U.S. corporations contributed over $70 billion to their defined benefit plans in 2011, the overall funding deficits at year-end 2011 reverted to 2009 levels,” said Eric Veletzos, principal and consulting actuary with Mercer’s Retirement, Risk & Finance business, and the study’s primary author. “Liability growth exceeded asset returns for the fourth consecutive year, offsetting these contributions.”


The median asset return for 2011 was 2.9%, down from 12.1% in 2010 and 18.5% in 2009. Meanwhile, the median pension liability grew by 13.7% in 2011, the third consecutive year with liability growth in excess of 10%. The high liability rate of growth is driven by decreasing interest rates.   

As of June 30, 2012, asset returns have declined even more, in part driven by the uncertain economic outlook, the European sovereign debt crisis and downgrades of credit ratings of several major global financial institutions.  

“The prevalence of ‘risky’ plans among S&P 1500 companies increased from 4.7% during 2010 to 7.1% during 2011, an increase of nearly 70%,” Veletzos said. “These plans are poorly funded and more material compared to the size of the corporations, so pension risk is a major issue for these organizations.”  

“We have also seen a continued decline in sponsors’ expectations of asset returns for the future,” he continued. “The median expected return declined from 7.92% to 7.73% at year-end 2011, likely because of a gradual movement away from higher risk assets, such as equities, combined with lower expectations of future market returns.”  

The report is available here.