S&P 1500 Pension Funded Status Increased by 8 Percent in 2022 

January 9, 2023

United States, New York

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies as of December 31, 2022, increased to 105 percent from 97 percent as of December 31, 2021. Over the course of 2022, interest rates used to calculate corporate pension plan liabilities skyrocketed by nearly 250 basis points, more than offsetting the double-digit losses in both equity and bond markets. The estimated aggregate surplus of $77 billion as of December 31, 2022, is $141 billion greater than the $64 billion deficit at the end of 2021 according to Mercer,^[1] a global consulting leader and a business of Marsh & McLennan (NYSE: MMC).

Mercer’s main findings for 2022 include:

• Funded status improved steadily through the first 3 quarters of the year, before soaring to as high as 109% at the end of October and subsequently fading to end the year. By the end of 2022, funded status increased to 105% from the 97% measured at the end of 2021.
• The deficit of $64 billion at 2021 year-end changed to a surplus of $77 billion at 2022 year-end.
• Interest rates increased about 248 basis points and equity markets experienced double-digit negative losses in 2022.
• The number of plan sponsors over 100% funded increased from 39% at year-end 2021 to 48% at the end of 2022.

The S&P 500 index decreased 19.44 percent during 2022 and the MSCI EAFE index decreased by 16.79 percent. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased from 2.76 percent to 5.24 percent during 2022.

“Funded status fell two percent in December but was up eight percent year over year,” said Matt McDaniel, a Partner in Mercer’s Wealth Business. “Over the course of 2022, we saw interest rates rise to their highest levels in over a decade but equity markets fell significantly for a variety of reasons, including tightening Fed monetary policy in order to curb high inflation and geopolitical uncertainty. By October, funded status had reached levels not seen in over 20 years on the back of soaring interest rates before fading to end the year. Even with the slight pullback, US plan sponsors are staring at the pension opportunity of a generation: whether the goal is hibernation, termination, or long-term sustainability, all of these options are the closest they have been in reach in many years. Sponsors should have a documented plan for how they will take advantage of improved funded status, and move quickly to ensure 2022 gains are not lost.”

Mercer estimates the aggregate funded status position of plans sponsored by S&P 1500 companies on a monthly basis. Figure 1 (below) 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 latest available year-end statement¹ and by projections to December 31, 2022, in line with financial indices. The estimates include U.S. domestic qualified and non-qualified plans, along with all non-domestic plans. The estimated aggregate value of pension plan assets of the S&P 1500 companies as of December 31, 2021, was $2.33 trillion USD, compared with estimated aggregate liabilities of $2.39 trillion USD. Allowing for changes in financial markets through December 31, 2022, changes to the S&P 1500 constituents, and newly released financial disclosures at the end of December, the estimated aggregate assets were $1.73 trillion USD, compared with the estimated aggregate liabilities of $1.65 trillion USD. Figure 2 shows the discount 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 https://www.mercer.com/en-us/insights/investments/market-outlook-and-trends/pension-buy-out-index.html.

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 funded status of all plans sponsored by companies in the S&P 1500

Source: Mercer, December 2022

Figure 2: High Quality Corporate Bond Yield and S&P 500 data points

Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s approximately 25,000 employees are based in 43 countries and the firm operates in 130 countries. Mercer is a business of Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 86,000 colleagues and annual revenue of over $20 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit mercer.com. Follow Mercer on LinkedIn and Twitter.

_{¹ Figures provided by Mercer Investments LLC.}

_{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.}