S&P 1500 Pension Funded Status Decreased by 1% in November

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S&P 1500 Pension Funded Status Decreased by 1% in November

  • December 3, 2015
  • United States, New York

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies decreased by 1% to 82% as of November 30, 2015, as rates increased and equity markets were mixed. As of November 30, 2015, the estimated aggregate deficit of $397 billion USD increased by $11 billion as compared to the end of October. Funded status is now up by $107 billion USD from the $504 billion USD deficit measured at the end of 2014, according to Mercer,[1] a global consulting leader in advancing health, wealth and careers of individuals, and a wholly-owned subsidiary of Marsh & McLennan Companies (NYSE: MMC).

The S&P 500 index stayed flat and the MSCI EAFE index dropped 1.7% in November. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased to 4.18 percent.

“November was able to hold most of the improvements in funded status from October, giving hope that 2015 will end up with a positive improvement in funded status when only a few months ago it looked like 2015 could be a damaging year for pension plans,” said Jim Ritchie, a Principal in Mercer’s Retirement business.  “Equity markets were flat while interest rates slightly increased for the month.  The vast majority of the funded status improvement for 2015 has come from rising rates as equity markets have been up only slightly in 2015.  While interest rates are still at historic lows, we see many plan sponsors now locking into the funded status improvement and executing on risk transfer strategies. They are looking to avoid the ever increasing cost of the variable rate PBGC premium that by 2019 will be four and a half times what it was only two years ago with the recent passage of the Bipartisan Budget Act of 2015 that raised PBGC premiums yet again.”

Mercer estimates the aggregate funded status position of plans sponsored by S&P 1500 companies on a monthly basis. Figure 1 (page 3) shows the estimated aggregate surplus/(deficit) position and the funded status of all plans sponsored by companies in the S&P 1500. The estimates are based on each company’s year-end statement[2] and by projections to November 30, 2015 in line with financial indices. The estimates include US domestic qualified and non-qualified plans and all non-domestic plans. The estimated aggregate value of pension plan assets of the S&P 1500 companies as of October 31, 2015, was $1.82 trillion USD, compared with estimated aggregate liabilities of $2.21 trillion USD. Allowing for changes in financial markets through November 30, 2015, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of November the estimated aggregate assets were $1.82 trillion USD, compared with the estimated aggregate liabilities of $2.22 trillion USD. Figure 2 shows the interest rates used in Mercer’s pension funding calculation.

Notes for editors

Information on the Mercer Yield Curve is available at http://www.mercer.com/pensiondiscount .

The Mercer US Pension Buyout Index may be accessed at www.mercer.com/US-pension-buyout-index .

Unless otherwise stated, the calculations are based on the Financial Accounting Standard (FAS) funding position and include analysis of the S&P 1500 companies.

Figure 1 : Estimated aggregate surplus/(deficit) position and the funded status of all plans sponsored by companies in the S&P 1500

 

Source: Mercer, November 2015

See page 4 for High Quality Corporate Bond Yield and S&P 500 data points (Figure 2).

Figure 2: Sample Data Points:

Date

High Quality Corporate Bond Yield[3]

S&P 500 Index[4]

December 31, 2007

6.40%

1,468.36

June 30, 2008

6.97%

1,280.00

December 31, 2008

6.34%

903.25

June 30, 2009

6.79%

919.32

December 31, 2009

5.98%

1,115.10

June 30, 2010

5.33%

1,030.71

December 31, 2010

5.33%

1,257.64

June 30, 2011

5.40%

1,320.64

December 31, 2011

4.55%

1,257.60

June 30, 2012

3.87%

1,362.16

December 31, 2012

3.71%

1,426.19

June 30, 2013

4.49%

1,606.28

December 31, 2013

4.69%

1,848.36

June 30, 2014

4.07%

1,960.23

December 31, 2014

3.81%

2,058.90

March 31, 2015

3.62%

2,067.89

June 30, 2015

4.28%

2,063.11

September 30, 2015

4.14%

1,920.03

October 31, 2015

4.14%

2,079.36

November 30, 2015

4.18%

2,080.41

###

About Mercer

Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and careers of their most vital asset – their people. Mercer’s more than 20,000 employees are based in 43 countries and the firm operates in over 140 countries.  Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With annual revenue of $13 billion and 57,000 colleagues worldwide, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer.

 

 

[1]Figures provided by Mercer Investment Consulting, Inc.

 

 

[2]Source of financial statement data: Standard & Poor’s Capital IQ. Standard and Poor’s is a division of The McGraw-Hill Companies, Inc. This may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poor’s.  Reproduction and distribution of third party content in any form is prohibited except with the prior written permission of the related third party.  Third party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content.  THIRD PARTY CONTENT PROVIDERS GIVE NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. THIRD PARTY CONTENT PROVIDERS shall not be liable for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or profits and opportunity costs) in connection with any use of THEIR CONTENT, INCLUDING ratings. Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase, hold, or sell securities. They do not address the suitability of securities or the suitability of securities for investment purposes, and should not be relied on as investment advice.

 

 

[3]Assumed duration of approximately 12 years. Based on an estimate of the Mercer Yield Curve Mature Plan Index rate.

 

 

[4]Includes price changes only; total returns also include dividends.

 

 

 

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