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Interest rates, mortality revisions offset pension plan gains in 2014: Mercer

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Interest rates, mortality revisions offset pension plan gains in 2014: Mercer

Lower interest rates and adoption of new mortality tables to reflect longer lifespans more than offset pension plan investment gains, sending plan funding levels plummeting in 2014, according to a Mercer L.L.C. survey released Tuesday.

On average, pension plans sponsored by companies in the S&P 1500 were 79% funded as of Dec. 31, 2014, down sharply from 88% funded as Dec. 31, 2013, Mercer said.

“The gains of 2013 effectively disappeared in 2014 due to declining interest rates and improved mortality estimates despite the good year for domestic equities,” Jim Ritchie, a principal in Mercer's retirement practice in Baltimore said in a statement.

In all, the value of plan liabilities shot up to nearly $2.4 trillion at the end of last year compared with just over $2 trillion a year earlier, Mercer said. During the same one-year period, plan assets rose to nearly $1.9 trillion from $1.8 trillion. That resulted in an aggregate funding deficit of just over $500 billion at the end of 2014, up sharply from the year-end 2013 funding shortfall of nearly $240 billion.

More employers are expected to take steps such as offering former employees the opportunity to convert their annuity benefits to a cash lump sum to reduce the size of their pension plans, Mr. Ritchie said.

When pension plan participants take lump-sum benefits and are no longer covered by the plan, their former employers do not have to worry about how interest rate fluctuations and investment results could affect how much they will have to contribute to their pension plans to fund future annuity payments.

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