Record Pension Gap Threatens Company Earnings

Pension deficits will put financial pressure on S&P 1500 plan sponsors this year, Mercer says

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 last week 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.

Mercer officials said the funded status deficit would have been worse if not for the estimated $60 billion that companies said they expected to contribute during 2012. For companies with calendar-year fiscal years, the year-end deficit is particularly critical because it affects their reported balance sheet liabilities and subsequent year accounting expense, as well as required cash contributions to plans.

“Many plan sponsors are merely treading water, or even moving backwards on funded status, despite significant cash contributions to their plans,” Barry said. “For many companies, a larger deficit will drive higher P&L expense and decreased earnings in 2013.”

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