S&P 1500 Pension Funded Status Decreased by 5 Percent in February

New York, N.Y., March 5, 2020

 

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies decreased by 5 percent in February 2020 to 79 percent as a result of a decrease in discount rates and equity markets. As of February 29, 2020, the estimated aggregate deficit of $527 billion USD increased by $125 billion USD as compared to $402 billion USD measured at the end of January according to Mercer,[1] a global consulting leader and a business of Marsh & McLennan Companies (NYSE: MMC).

 

The S&P 500 index decreased 8.41 percent and the MSCI EAFE index decreased 9.23 percent in February. Typical discount rates for pension plans as measured by the Mercer Yield Curve decreased from 2.85 percent to 2.65 percent.

 

“Pension funded status has decreased by 9 percent since the beginning of the year as equity markets took a dive in late February and interest rates hit yet another all-time low,” said Matt McDaniel, a Partner in Mercer’s Wealth business. “Concerns around the global economy loom with the coronavirus spreading around the world, illustrating just how quickly markets can react. Plan sponsors should continue to review their investment policies and consider adopting de-risking strategies as appropriate to ensure gains are locked-in when funded status improves in order to provide protection during economic downturns.”

 

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 February 29, 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 January 31, 2019 was $2.12 trillion USD, compared with estimated aggregate liabilities of $2.52 trillion USD. Allowing for changes in financial markets through February 29, 2020, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of February the estimated aggregate assets were $2.02 trillion USD, compared with the estimated aggregate liabilities of $2.55 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, February 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

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

January 31, 2020

2.85%

3,225.52

February 29, 2020

2.65%

2,954.22

[1]Figures provided by Mercer Investments LLC.

[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.

 

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