S&P 1500 Pension Funded Status Increased by Three Percent in 2019

 

  • Funded status improved to 88% at the end of 2019 compared to 85% at the end of 2018
  • Deficits decreased from $312 billion USD at 2018 year-end to $301 billion USD at 2019 year-end
  • Interest rates decreased and equity markets experienced positive gains in 2019

New York, N.Y., January 7, 2020 – The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies increased to 88 percent as of December 31, 2019 from 85 percent as of December 31, 2018. Over the course of 2019, increases in equity and fixed income markets more than offset decreases in interest rates used to calculate corporate pension plan liabilities to support the increase in funded status. The estimated aggregate deficit of $301 billion USD as of December 31, 2019 is $11 billion USD less than the $312 billion USD deficit at the end of 2018 according to Mercer, a global consulting leader in advancing health, wealth and career, and a wholly-owned business of Marsh & McLennan Companies (NYSE: MMC).

 

The S&P 500 total return index increased 28.88 percent during 2019 and the MSCI EAFE total return index increased 18.44 percent. Typical discount rates for pension plans as measured by the Mercer Yield Curve decreased by 101 basis points during 2019 to 3.18 percent.

 

“The rollercoaster ride continued during 2019 as we saw funded status drop as low as 81% but fortunately equities had a strong end to the year leading to an increase in funded status year over year,” said Matt McDaniel, a Partner in Mercer’s wealth business. “During 2019 we saw equity markets reach all-time highs while interest rates dropped to historic lows. Despite the dramatic drop in rates, we saw funded status push higher as equity markets were unrelenting throughout most of the year. As we start a new year, plan sponsors should review their pension risk management strategy to consider whether it is prudent to lock in gains as opportunities arise in this unpredictable market.”

 

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, 2019 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, 2018 was $1.81 trillion USD, compared with estimated aggregate liabilities of $2.13 trillion USD. Allowing for changes in financial markets through December 31, 2019 and changes to the S&P 1500 constituents, at the end of December the estimated aggregate assets were $2.11 trillion USD, compared with the estimated aggregate liabilities of $2.41 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 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

June 30, 2019

3.44%

2,941.76

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

 

 

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 25,000 employees are based in 44 countries and the firm operates in over 130 countries. Mercer is a business of Marsh & McLennan Companies (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people with 76,000 colleagues and annualized revenue approaching $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.

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