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The Actuary The magazine of the Institute & Faculty of Actuaries

%24191bn wiped off US S&P1500 pensions in first six days of August

As of the market close on 8 August, the deficit corresponds to a 10% reduction from Mercer's calculation of an 83% funded ratio as of July 31, and a 15% reduction from the peak funded status of 88% measured in April.

The decline in funded status was driven by a 13% drop in equities, combined with a fall in yields on high-quality corporate bonds during the first six trading days of the month. Discount rates for the typical US pension plan decreased approximately 42 basis points over this period.

Jonathan Barry, partner, Mercer, said: "What we are seeing is yet another "perfect storm" of equity losses combined with a drop in interest rates, similar to what we saw in 2000/2001 and 2008. The 73% funded ratio we saw at the end of the day on Monday is the lowest level since August, 2010. While the drop in equity markets is getting most of the attention, it is important to realise that the 42-point drop in discount rates over the past six days is playing a major role in the decline.