S&P 1500 Pension Funded Status Increased by One Percent in 2018

S&P 1500 Pension Funded Status Increased by One Percent in 2018

S&P 1500 Pension Funded Status Increased by One Percent in 2018

  • January 4, 2019
  • United States, New York

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies as of December 31, 2018 increased to 85 percent from 84 percent as of December 31, 2017. Over the course of 2018, decreases in equity and fixed income markets were offset by increases in interest rates used to calculate corporate pension plan liabilities to support the slight increase in funded status. The estimated aggregate deficit of $312 billion as of December 31, 2018 is $63 billion less than the $375 billion deficit at the end of 2017 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 2018 include:

  • Throughout most of 2018, funded status remained higher than in 2017. By November 2018, funded status had improved to 91% but tumbled in December to 85% as a result of a decrease in US equity markets and a decrease in discount rates.
  • Deficits decreased from $375 billion at 2017 year-end to $312 billion at 2018 year-end.
  • Interest rates increased about 60 basis points and equity markets experienced losses in 2018. 

The S&P 500 total return index lost 4.38 percent during 2018 and the MSCI EAFE total return index lost 13.36 percent. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased by 63 basis points during 2018 to 4.19 percent. 

“We saw funded status improve dramatically during the first three quarters of 2018 but most of the gains were erased by the end of the year as equity markets sharply declined in the fourth quarter,” said Scott Jarboe, a Partner in Mercer’s Wealth business. “During 2018 we continued to see significant risk transfer activity primarily through annuity purchases and many plan sponsors accelerated contributions to take advantage of tax reform. Looking forward to 2019, we think many plan sponsors will continue to explore risk transfer activities as well as review their investment policies to ensure they are aligned with an evolving market environment.” 

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, 2018 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, 2017 was $1.95 trillion USD, compared with estimated aggregate liabilities of $2.33 trillion USD. Allowing for changes in financial markets through December 31, 2018 and changes to the S&P 1500 constituents, at the end of December the estimated aggregate assets were $1.81 trillion USD, compared with the estimated aggregate liabilities of $2.13 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 2018 

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

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

June 30, 2015

4.28%

2,063.11

December 31, 2015

4.24%

2,043.94

June 30, 2016

3.47%

2,098.86

December 31, 2016

4.04%

2,238.83

June 30, 2017

3.78%

2,423.41

December 31, 2017

3.56%

2,673.61

June 30, 2018

4.14%

2,718.37

September 30, 2018

4.20%

2,913.98

November 30, 2018

4.42%

2,760.17

December 31, 2018

4.19%

2,506.85

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

[1]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