Mercer | S&P 1500 Pension Funded Status for December 2016

Mercer | S&P 1500 Pension Funded Status for December 2016

S&P 1500 Pension Funded Status Recovers to 2015 Levels, Reaching 2016 High in December

  • January 5, 2017
  • United States, New York

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies as of December 31, 2016 returned to the same level, 82 percent, as it was as of December 31, 2015. Over the course of 2016, increases in equity and fixed income markets were offset by decreases in interest rates used to calculate corporate pension plan liabilities, maintaining the funded status at 82 percent. The estimated aggregate deficit of $408 billion as of December 31, 2016 is $4 billion more than the $404 billion deficit at the end of 2015 according to Mercer, a global consulting leader in advancing health, wealth and careers of individuals, and a wholly-owned subsidiary of Marsh & McLennan Companies (NYSE: MMC). 

Mercer’s main findings for 2016 include:

•     Throughout most of 2016, rates and funded status remained lower than in 2015. By the end of 2016, funded status improved to the same level, 82%, as at the end of 2015.

•     Deficits increased slightly from $404 billion at 2015 year-end to $408 billion at 2016 year end.

•     Interest rates decreased by 20 basis points in 2016, offsetting the positive impact of equity market gains in 2016. 

The S&P 500 total return index gained 12.0 percent during 2016 and the MSCI EAFE total return index gained 1.5 percent. Typical discount rates for pension plans as measured by the Mercer Yield Curve decreased by 20 basis points during 2016 to 4.04 percent. 

“In 2016, we saw positive returns across nearly every major asset class, and yet pension funded status didn’t improve at all.” said Matt McDaniel, a Partner in Mercer’s Retirement business. “The impact of falling rates early in the year was so strong that it took a huge funded status improvement in November and December just to get us back to where we started the year. This is an important lesson for plan sponsors that focusing on asset growth solutions alone is not likely to eliminate their deficits. Liability management strategies, including pension risk transfer, play an important role in managing plan risk and cost.” 

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[1] and by projections to December 31, 2016 in line with financial indices. The estimates include 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, 2015 was $1.80 trillion USD, compared with estimated aggregate liabilities of $2.20 trillion USD. Allowing for changes in financial markets through December 31, 2016, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of December the estimated aggregate assets were $1.81 trillion USD, compared with the estimated aggregate liabilities of $2.21 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, December 2016 

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

Figure 2:

Date

High Quality Corporate Bond Yield

S&P 500 Index

December 31, 2007

6.40%

1,468.36

June 30, 2008

6.97%

1,280.00

December 31, 2008

6.34%

903.25

June 30, 2009

6.79%

919.32

December 31, 2009

5.98%

1,115.10

June 30, 2010

5.33%

1,030.71

December 31, 2010

5.33%

1,257.64

June 30, 2011

5.40%

1,320.64

December 31, 2011

4.55%

1,257.60

June 30, 2012

3.87%

1,362.16

December 31, 2012

3.71%

1,426.19

June 30, 2013

4.49%

1,606.28

December 31, 2013

4.69%

1,848.36

June 30, 2014

4.07%

1,960.23

December 31, 2014

3.81%

2,058.90

March 31, 2015

3.62%

2,067.89

June 30, 2015

4.28%

2,063.11

September 30, 2015

4.14%

1,920.03

December 31, 2015

4.24%

2,043.94

March 31, 2016

3.80%

2,059.74

June 30, 2016

3.47%

2,098.86

September 30, 2016

3.46%

2,168.27

October 31, 2016

3.66%

2,126.15

November 30, 2016

4.11%

2,198.81

December 31, 2016

4.04%

2,238.83

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 professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With 60,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer

Mercer Investment Consulting, LLC is a federally registered investment adviser under the Investment Advisers Act of 1940, as amended, providing nondiscretionary and discretionary investment advice to its clients on an individual basis. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Mercer’s Form ADV Part 2A & 2B can be obtained by written request directed to:  Compliance Department, Mercer Investments, 701 Market Street, Suite 1100, St. Louis, MO  63101.

 

 

 

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