S&P 1500 pension funded status increases 6% in February

S&P 1500 pension funded status increases 6% in February

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S&P 1500 pension funded status increases 6% in February as interest rates and equity markets rise

  • March 4, 2015
  • United States, New York

·         Deficits decreased by $168 billion in January to $486 billion

·         Interest rates increased by 27 basis points

·         The S&P 500 index experienced a 5.5% gain in February

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies increased from 74% as of January 31, 2015 to 80% as of February 28, 2015. Increases in interest rates used to calculate corporate pension plan liabilities coupled with gains in equity markets increased funded status by 6%. The estimated aggregate deficit of $486 billion as of February 28, 2015 improved by $168 billion from the end of January, which is the largest single month improvement seen since Mercer has tracked this information in 2007. The improvement in February essentially wiped out the decreases in funded status seen in January, with overall funded status down just $18 billion from the $504 billion deficit measured at the end of 2014, according to Mercer,[1] a global consulting leader in advancing health, wealth and careers, and a wholly-owned subsidiary of Marsh & McLennan Companies (NYSE: MMC).

The S&P 500 price index gained 5.5% in February. The MSCI EAFE index gained 5.8%. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased by 27 basis points to 3.60%.

“Capital market conditions in February were a welcome relief to plan sponsors after the pain felt in December and January,” said Matt McDaniel, a principal in Mercer’s Retirement Practice. “The $168 billion improvement in funded status is the largest single-month gain since we began tracking this in 2007. However, the speed of this recovery underscores the volatility inherent in defined benefit pension plans.  It is important that sponsors have a plan in place to lock in these recent gains or they risk losing them.”

Mercer estimates the aggregate funded status position of plans sponsored by S&P 1500 companies on a monthly basis. Figure 1 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 year-end statement[2] and by projections to February 28, 2015 in line with financial indices. This includes 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 January 31, 2015, was $1.90 trillion, compared with estimated aggregate liabilities of $2.55 trillion. Allowing for changes in financial markets through February 28, 2015, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of February the estimated aggregate assets were $1.92 trillion, compared with the estimated aggregate liabilities of $2.40 trillion. Figure 2 shows the interest 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 www.mercer.com/US-pension-buyout-index.

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, February 2015

Funded status figures from 12/31/2013 through 4/30/2013 have been revised to reflect updated 10-K data as of 5/31/2014.

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

Figure 2: Sample Data Points:

Date

High Quality Corporate Bond Yield[3]

S&P 500 Index[4]

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

January 31, 2015

3.33%

1,994.99

February 28, 2015

3.60%

2,104.50

 

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 more than 40 countries and the firm operates in over 130 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 57,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a 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 @MercerInsights.

[1]Figures provided by Mercer Investment Consulting, Inc. Funded status figures from 12/31/2013 onwards have been revised to reflect updated 10-K data.

[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.

[3]Assumed duration of approximately 12 years. Based on Mercer Yield Curve Mature Plan Index rate.

[4]Includes price changes only; total returns also include dividends.

 

 

 

 

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