S&P 1500 Pension Funded Status Increased by Two Percent in 2017

S&P 1500 Pension Funded Status Increased by Two Percent in 2017

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S&P 1500 Pension Funded Status Increased by Two Percent in 2017

  • January 5, 2017
  • United States, New York City

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies as of December 31, 2017 increased to 84 percent from 82 percent as of December 31, 2016. Over the course of 2017, 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 $375 billion as of December 31, 2017 is $33 billion less than the $408 billion deficit at the end of 2016 according to Mercer, a global consulting leader in advancing health, wealth and career, and a wholly-owned subsidiary of Marsh & McLennan Companies (NYSE: MMC). 

Mercer’s main findings for 2017 include:

•     Throughout most of 2017, funded status remained higher than in 2016. By the end of 2017, funded status improved to 84% from the 82% measured at the end of 2016.

•     Deficits decreased from $408 billion at 2016 year-end to $375 billion at 2017 year-end.

•     Interest rates decreased nearly 50 basis points and equity markets experienced positive gains in 2017. 

The S&P 500 total return index gained 21.83 percent during 2017 and the MSCI EAFE total return index gained 25.6 percent. Typical discount rates for pension plans as measured by the Mercer Yield Curve decreased by 48 basis points during 2017 to 3.56 percent. 

“2017 was marked with strong equity performance - over 20% - however the typical plans’ funded status increased by only 2% given decreasing discount rates.” said Scott Jarboe, a Partner in Mercer’s Wealth business. “Looking forward to 2018, we think most plan sponsors will be taking a serious look at accelerating contributions given the recent passage of tax reform.  Plan sponsors have a limited window to take advantage of higher deductions and avoid the significant increase in the after-tax cost of pensions.  Contributions will serve to boost funded status, and we believe they will fuel investment policy changes to de-risk financials and more risk transfer activity in an already vibrant 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 financial statements[1] and by projections to December 31, 2017 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, 2016 was $1.81 trillion USD, compared with estimated aggregate liabilities of $2.21 trillion USD. Allowing for changes in financial markets through December 31, 2017 and changes to the S&P 1500 constituents, at the end of December the estimated aggregate assets were $1.95 trillion USD, compared with the estimated aggregate liabilities of $2.33 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 2017 

See Figure 2 (below) for 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

July 31, 2017

3.76%

2,470.30

August 31, 2017

3.64%

2,471.65

September 30, 2017

3.71%

2,519.36

October 31, 2017

3.67%

2,575.26

November 30, 2017

3.69%

2,647.58

December 31, 2017

3.56%

2,673.61


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 22,000 employees are based in 43 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 more than 60,000 colleagues and annual revenue over $13 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

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