Contact: Mercer Feedback
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Funding levels of pension plans sponsored by S&P 1500 companies continued their improvement in funded status in 2013, with a further 2% improvement November, resulting in a funded ratio (assets divided by liabilities) of 93% at the end of the month, up 19% year-to-date. This funded ratio corresponds to a deficit of $138 billion as of November 30, 2013, down from $185 billion a month ago, and a significant reduction from the estimated deficit of $557 billion as of December 31, 2012 according to Mercer.
Equity markets enjoyed steady growth during the month with the S&P 500 index increasing 2.8%. Yields on high grade corporate bond rates also rose, which led to a reduction in pension plan liabilities. The Mercer Yield Curve discount rate for mature pension plans rose from 4.45% to 4.59%, and is up 88 basis points year-to-date.
“Plan sponsors are significantly closer to full funding than they have been at any time in the recent past,” said Jonathan Barry, a partner in Mercer’s retirement business. “This potentially opens up opportunities to manage pension risk that may not have been practical a year ago, such as annuity buyouts or cashout offers to participants. We are seeing a lot of plan sponsors get organized now to address the legal, administrative and compliance reviews that are needed so they can move ahead with a pension risk transfer exercise in 2014.”
Mercer estimates the aggregate funded status position of plans operated by S&P 1500 companies on a monthly basis. Figure 1 shows the estimated aggregate surplus/(deficit) position and the funded status of all plans operated by companies in the S&P 1500. The estimates are based on each company’s year end statement and by projections to November 30, 2013 in line with financial indices. This includes 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 December 31, 2012, was $1.59 trillion, compared with estimated aggregate liabilities of $2.14 trillion. Allowing for changes in financial markets through November 30, 2013, changes to the S&P 1500 constituents and newly released financial disclosures, at the end of November the estimated aggregate assets were $1.84 trillion, compared with the estimated aggregate liabilities of $1.98 trillion.
Notes for editors
Unless otherwise stated, the calculations are based on the Financial Accounting Standard (FAS) funding position and include analysis of the S&P 1500 companies.
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
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s 20,000 employees are based in more than 40 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 53,000 employees worldwide and annual revenue exceeding $10 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @MercerInsights.
Figures provided by Mercer Investment Consulting, Inc.
Source of financial statement data: Standard & Poor’s Capital IQ. Standard and Poor’s is a division of The McGraw-Hill Companies, Inc.