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NEW YORK – Defined benefit plan sponsors may find themselves sailing on “treacherous seas,” according to a new report from Mercer Human Resource Consulting. Mercer recently completed its annual survey titled How Does Your Retirement Plan Stack Up of the retirement programs sponsored by the companies in the S&P 500, using information primarily reported in 10-K filings for fiscal year 2005. The survey covers information on the entire retirement program, including traditional defined benefit plans as well as defined contribution and postretirement medical and life insurance plans. First, there was the “perfect storm” of 2000-2002, which combined negative equity returns with falling interest rates, the report noted. The effects of this period are still being felt today and continue to generate higher pension expense and increased contribution requirements. Now proposed accounting rules are about to change the appearance of the corporate balance sheet for many plan sponsors. The proposed changes, reflecting a mark-to-market philosophy, have the potential to significantly reduce shareholder equity, Mercer said. On the economic front, events beneficial to DB plans have already occurred, according to the report. Long-term interest rates have reversed the steady decline of the past few years. The asset return for a typical plan through May 31 was 2.3%. The Financial Accounting Standards Board recently issued an exposure draft that would require plan sponsors to reflect the net funded status of their pension and postretirement medical and life insurance plans directly on the balance sheet.

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