S&P 1500 pension funded status declines 9% in 2014

S&P 1500 pension funded status declines 9% in 2014

S&P 1500 pension funded status declines 9% in 2014

  • January 6, 2015
  • United States, New York

·         Deficits revert to year-end 2012 levels, wiping out 2013 gains

·         New mortality tables are projected to increase liabilities by at least 4% for end-of-year accounting disclosures

·         Deficits more than doubled from $237 billion at 2013 year-end to $504 billion at 2014 year end, which will drive significant adjustments to balance sheets and 2015 P&L expense

·         Interest rates decreased by 88 basis points from 2013 year-end, reaching lowest levels in 2014, offsetting the positive impact of the 11.4% gain in the S&P 500 index in 2014

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies decreased from 88% as of December 31, 2013 to 79% as of December 31, 2014. Decreases in interest rates used to calculate corporate pension plan liabilities combined with an increase in liability to reflect improved longevity overpowered increases in equity and fixed income markets, decreasing funded status to 79%. Mercer anticipates that most plan sponsors will adopt new mortality tables reflecting improved mortality projections, such as the ones published by the Society of Actuaries earlier this year, or industry specific mortality tables developed by Mercer in 2014. The estimated aggregate deficit of $504 billion as of December 31, 2014 is more than double the $237 billion deficit seen at the beginning of the year according to Mercer.[1]

The S&P 500 index rose by 11.4% during 2014, while MSCI EAFE index decreased by 7.4%. Typical discount rates for pension plans as measured by the Mercer Yield Curve decreased by 88 basis points to 3.81%.

“The gains of 2013 effectively disappeared in 2014 due to declining interest rates and improved mortality estimates despite the good year for domestic equities”, said Jim Ritchie, a Principal in Mercer’s Retirement Business.  “The volatility over the last two years shows the benefit of sponsors having a comprehensive risk management strategy in place to mitigate these wide swings in funded status. These strategies include “glidepath” investment policies that generally involve buying long-term bonds as funded status improves, as well as risk transfer exercises such as cashout programs for former employees and annuity purchases for retiree groups. The potential benefits of these risk transfer strategies are highlighted by the significant improvements in longevity seen from the new mortality studies in 2014. We expect to see an uptick in both glidepath adoption as well as risk transfer in 2015, as sponsors seek to mitigate the impact of this pension volatility on their balance sheet and P&L.”

Mercer estimates the aggregate funded status position of plans sponsored by S&P 1500 companies on a monthly basis. Figure 1 (next page) 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 December 31, 2014 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, 2013, was $1.80 trillion, compared with estimated aggregate liabilities of $2.03 trillion. Allowing for changes in financial markets through December 31, 2014, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of December the estimated aggregate assets were $1.89 trillion, compared with the estimated aggregate liabilities of $2.39 trillion. 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, December 2014

Funded status figures from 12/31/2013 through 4/30/2013 have been revised to reflect updated 10-K data as of 5/31/2014.

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

Figure 2: Sample Data Points:


High Quality Corporate Bond Yield[3]

S&P 500 Index[4]

December 31, 2007



June 30, 2008



December 31, 2008



June 30, 2009



December 31, 2009



June 30, 2010



December 31, 2010



June 30, 2011



December 31, 2011



June 30, 2012



December 31, 2012



June 30, 2013



December 31, 2013



June 30, 2014



November 30, 2014



December 31, 2014




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 performance 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 team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 55,000 employees worldwide and annual revenue exceeding $12 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

[1]Figures provided by Mercer Investment Consulting, Inc. Funded status figures from 12/31/2013 onwards have been revised to reflect updated 10-K data.

[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 Mercer Yield Curve Mature Plan Index rate.

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