After three consecutive quarters of improvement, a new analysis from Hewitt Associates, a global human resources consulting and outsourcing company, found that significant decreases in global equity markets and interest rates led to a decline in the overall financial status of pension plans in the second quarter of 2010. This market volatility contributed to the lowest global pension funding levels Hewitt has seen since the onset of the financial crisis and recession. It also erased nearly all of the improvement in funded status that pension plans experienced over the last 18 months.
Hewitt monitors and analyzes daily pension funding levels of U.S., U.K., Continental European, and Canadian companies in the S&P 500, FTSE 350, DJ Euro Stoxx 50, and TSX, respectively, through its Pension Risk Tracker tool. Hewitt found that the overall funded status of pension plans in these regions was 80 percent at the end of the second quarter of 2010, 7 percent lower than the funded status levels at the end of the first quarter (87 percent). This translates to about $500 billion global pension deficit. According to Hewitt’s estimate, global pension assets fell by $91 billion in the quarter, while pension liabilities increased by $106 billion over the same period.
“After solid performance in April, global equity markets fell meaningfully in May and June, which drove down pension asset levels. This, coupled with higher liability valuation due to falling interest rates, further worsened the health of defined benefit plans globally,” said Ari Jacobs, Hewitt’s North American Retirement Solutions leader. “As market volatility around the world continues, companies need to carefully monitor both the asset and liability side of the equation and understand how they intersect. This approach will enable companies to respond more quickly to swings in the market and help them make decisions that optimize risk and return.”