S&P 1500 Pension Funded Status Increased by 4 Percent in April

 

New York, N.Y., May 4, 2020 – The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies increased by 4 percent in April 2020 to 80 percent as a result of an increase in equity markets which offset a decrease in discount rates. As of April 30, 2020, the estimated aggregate deficit of $490 billion USD decreased by $86 billion USD as compared to $576 billion USD measured at the end of March according to Mercer,[1] a global consulting leader and a business of Marsh & McLennan Companies (NYSE: MMC).

 

The S&P 500 index increased 12.68 percent and the MSCI EAFE index increased 6.29 percent in April. Typical discount rates for pension plans as measured by the Mercer Yield Curve decreased from 3.04 percent to 2.77 percent.

 

“Despite a dip in discount rates, we saw funded status rise in April due to a nice rebound in the equity markets,” said Matt McDaniel, a partner in Mercer’s Wealth business. “Equity volatility, while still high, trended downward in April, but significant risk remains in equity markets. In Q1, US GDP shrank nearly 5%, the worst quarter since the financial crisis, and many economists expect Q2 to show further shrinkage of 20 to 30%. Despite that, the S&P 500 is down only 9% year to date, suggesting a long-term optimism that may be incongruent with short term economic conditions. Plan sponsors looking to reduce risk should take note that pension risk transfer markets have continued to function smoothly throughout the pandemic. Even in this uncertain market, insurers are offering very attractive pricing to take on pension liabilities, with many plan sponsors able to transact at or below their balance sheet liability.”

 

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 April 30, 2020 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 March 31, 2020 was $1.86 trillion USD, compared with estimated aggregate liabilities of $2.43 trillion USD. Allowing for changes in financial markets through April 30, 2020, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of April the estimated aggregate assets were $1.96 trillion USD, compared with the estimated aggregate liabilities of $2.45 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, April 2020

 

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

July 31, 2019

3.38%

2,980.38

August 31, 2019

2.95%

2,926.46

September 30, 2019

3.08%

2,976.74

October 31, 2019

3.08%

3,037.56

November 30, 2019

3.10%

3,140.98

December 31, 2019

3.18%

3,230.78

January 31, 2020

2.85%

3,225.52

February 29, 2020

2.65%

2,954.22

March 31, 2020

3.04%

2,584.59

April 30, 2020

2.77%

2,912.43

 

 

About Mercer

 

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 more than 25,000 employees are based in 44 countries and the firm operates in over 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 76,000 colleagues and annual revenue of $17 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 www.mercer.com. Follow Mercer on Twitter @Mercer.

 



[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.

 

 

CONTACT INFORMATION