S&P 1500 Pension Funded Status Decreased by 4 Percent in 2020

 

New York, N.Y., January 5, 2021 – The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies as of December 31, 2020 decreased to 84 percent from 88 percent as of December 31, 2019. Over the course of 2020, decreases in interest rates used to calculate corporate pension plan liabilities more than offset increases in equity and fixed income markets to support the decrease in funded status. The estimated aggregate deficit of $407 billion as of December 31, 2020 is $106 billion more than the $301 billion deficit at the end of 2019 according to Mercer,[1] a global consulting leader and a business of Marsh & McLennan (NYSE: MMC).

 

Mercer’s main findings for 2020 include:

 

  • Throughout much of 2020, funded status was lower compared to the end of 2019. By the end of 2020, funded status declined to 84% from the 88% measured at the end of 2019.
  • Deficits increased from $301 billion at 2019 year-end to $407 billion at 2020 year-end.
  • Interest rates decreased about 85 basis points and equity markets experienced positive gains in 2020.

The S&P 500 return index increased 16.26 percent during 2020 and the MSCI EAFE return index increased 5.43 percent. Typical discount rates for pension plans as measured by the Mercer Yield Curve decreased from 3.18 percent to 2.32 percent during 2020.

 

“2020 was a bumpy ride for pension plans as we saw funded status start the year at 88%, drop to as low as 74% during March as COVID-19 spread across the world sending shockwaves through the global economy and finally end the year at 84%,” said Matt McDaniel, a Partner in Mercer’s Wealth Business. “During 2020 we saw equity markets dip sharply early in the year and later in the year reach fresh all-time highs while discount rates dropped to historic lows. When the dust settled, the sharp rise in equities was not enough to offset discount rate decreases resulting in a lower funded status at the end of the year. With fixed income yield return expectations near all-time lows and equity markets at all-time highs, plan sponsors should review their investment policies to ensure they are well-positioned for a historically low return 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[2] and by projections to December 31, 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 December 31, 2019 was $2.11 trillion USD, compared with estimated aggregate liabilities of $2.41 trillion USD. Allowing for changes in financial markets through December 31, 2020, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of December the estimated aggregate assets were $2.19 trillion USD, compared with the estimated aggregate liabilities of $2.60 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 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

December 31, 2019

3.18%

3,230.78

March 31, 2020

3.04%

2,584.59

April 30, 2020

2.77%

2,912.43

May 31, 2020

2.69%

3,044.31

June 30, 2020

2.57%

3,100.29

July 31, 2020

2.20%

3,271.12

August 31, 2020

2.46%

3,500.31

September 30, 2020

2.53%

3,363.00

October 31, 2020

2.64%

3,269.96

November 30, 2020

2.37%

3,621.63

December 31, 2020

2.32%

3,756.07

 

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.

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