S&P 1500 Pension Funded Status Decreased by Five Percent in May

S&P 1500 Pension Funded Status Decreased by Five Percent in May

S&P 1500 Pension Funded Status Decreased by Five Percent in May

  • June 7, 2019
  • New York, New York City

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies decreased by five percent in May 2019 to 85% as a result of a decrease in equity markets and discount rates. As of May 31, 2019, the estimated aggregate deficit of $339 billion USD increased by $107 billion USD as compared to $232 billion USD measured at the end of April according to Mercer,[1] a global consulting leader in advancing health, wealth and career, and a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC).

The S&P 500 index decreased 6.35 percent and the MSCI EAFE index decreased 4.66 percent in May. Typical discount rates for pension plans as measured by the Mercer Yield Curve decreased from 3.84 percent to 3.63 percent.

“May was a rough month for pensions as equity markets decreased markedly and interest rates continued their downward spiral that began in late 2018,” Scott Jarboe, a Partner in Mercer’s US Wealth business. “Despite decreases in interest rates earlier this year, the equity market drove funded status higher. However, the trend changed dramatically during May as the funded status gains we saw since the beginning of the year were completely erased with both interest rates and equities moving in the wrong direction. The persistent volatility serves as a reminder that pension risk management is an on-going process and plan sponsors must be diligent to ensure they are well prepared to weather the storm.”

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 statement[2] and by projections to May 31, 2019 in line with financial indices. The estimates include US 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 April 30, 2019 was $1.99 trillion USD, compared with estimated aggregate liabilities of $2.22 trillion USD. Allowing for changes in financial markets through May 31, 2019, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of May the estimated aggregate assets were $1.95 trillion USD, compared with the estimated aggregate liabilities of $2.29 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 http://www.mercer.us/our-thinking/mercer-us-pension-buyout-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 surplus/ (deficit) position and the funded status of all plans sponsored by companies in the S&P 1500

Source: Mercer, May 2019

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

Date

High Quality Corporate Bond Yield

S&P 500 Index

December 31, 2007

6.40%

1,468.36

December 31, 2008

6.34%

903.25

December 31, 2009

5.98%

1,115.10

December 31, 2010

5.33%

1,257.64

December 31, 2011

4.55%

1,257.60

December 31, 2012

3.71%

1,426.19

December 31, 2013

4.69%

1,848.36

December 31, 2014

3.81%

2,058.90

December 31, 2015

4.24%

2,043.94

December 31, 2016

4.04%

2,238.83

December 31, 2017

3.56%

2,673.61

December 31, 2018

4.19%

2,506.85

January 31, 2019

4.04%

2,704.10

February 28, 2019

4.09%

2,784.49

March 31, 2019

3.78%

2,834.40

April 30, 2019

3.84%

2,945.83

May 31, 2019

3.63%

2,752.06

About Mercer

Mercer delivers advice and technology-driven solutions that help organizations meet the health, wealth and career needs of a changing workforce. Mercer’s more than 23,000 employees are based in 44 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), the leading global professional services firm in the areas of risk, strategy and people. With nearly 65,000 colleagues and annual revenue over $14 billion, through its market-leading companies including Marsh, Guy Carpenter and Oliver Wyman, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer.

[1]Figures provided by Mercer Investment Consulting 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.

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