S&P 1500 Pension Funded Status Increased by 1 Percent in September 

October 13, 2022 

United States, New York

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies increased by 1 percent in September 2022 to 102 percent as a result of an increase in discount rates partially offset by a decrease in equity markets. As of September 30, 2022, the estimated aggregate surplus of $29 billion USD increased by $6 billion USD as compared to a surplus of $23 billion USD measured at the end of August according to Mercer,¹ a global consulting leader and a business of Marsh McLennan (NYSE: MMC).

The S&P 500 index decreased 9.34 percent and the MSCI EAFE index decreased 9.73 percent in August. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased from 4.70 percent to 5.41 percent.

“Pension funded status inched up during September on surging interest rates,” said Scott Jarboe, a Partner in Mercer’s Wealth Business. “Equities pulled back sharply in September as the Fed increased rates again and continued to reiterate they will raise rates until inflation is under control. We are entering uncharted territory as the Fed has maintained their hawkish policy despite equity markets falling the past several months and now firmly in a bear market.  Fortunately for most sponsors, funded status has held up with higher rates, and we are encouraging clients to take a fresh look at de-risking and diversification of growth portfolios.”

“On a global level, in late September UK gilt yields spiked dramatically resulting in collateral calls for many UK pension plans due to sharp losses in their liability-driven investing (LDI) portfolios and the Bank of England ultimately stepped in to purchase long-dated gilt to restore market conditions. While for the most part pension funded status was not negatively impacted, this raises some questions around whether the same risk exists for US plans. Leverage is much more common with UK pension LDI portfolios, while US pension plans, on average, tend to use less or no leverage.  Furthermore,  the US Treasury market is much larger compared to the UK gilt market, the long-end of which is dominated in ownership by UK pension plans. Plan sponsors should have increased awareness of the potential risk if leverage is being used in their LDI portfolios to ensure they have adequate liquidity to satisfy potential collateral calls,” Jarboe added.

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 statement² and by projections to September 30, 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 August 31, 2022 was $1.79 trillion USD, compared with estimated aggregate liabilities of $1.77 trillion USD. Allowing for changes in financial markets through September 31, 2022, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of August the estimated aggregate assets were $1.64 trillion USD, compared with the estimated aggregate liabilities of $1.61 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 https://www.mercer.com/en_us/insights/retirement/defined-benefit-plans/pension-discount-yield-curve-and-index-rates-in-us.html.

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, September 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 83,000 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.}

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