S&P 1500 Pension Funded Status Increased by 1 Percent in January

 

New York, N.Y., February 2, 2021 – The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies increased by 1 percent in January 2021 to 85 percent as a result of an increase in discount rates partially offset by a decrease in equity markets. As of January 31, 2021, the estimated aggregate deficit of $383 billion USD decreased by $24 billion USD as compared to $407 billion USD measured at the end of December according to Mercer,[1] a global consulting leader and a business of Marsh & McLennan (NYSE: MMC).

 

 

The S&P 500 index decreased 1.11 percent and the MSCI EAFE index decreased 1.09 percent in January. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased from 2.32 percent to 2.50 percent.

 

 

“January was generally a calm month for pensions as funded status rose slightly with the increase in discount rates,” said Scott Jarboe, a Partner in Mercer’s Wealth Business. “However, in late January House Democrats revived a proposal for pension funding relief. Pension funding relief was considered last year as part of a COVID-19 stimulus bill but it never gained enough traction. Since the Democrats now control the House and Senate, pension funding relief has picked up considerable momentum so plan sponsors should keep an eye on this as negotiations continue over the next couple of months.”

 

 

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 January 31, 2021 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, 2020 was $2.19 trillion USD, compared with estimated aggregate liabilities of $2.60 trillion USD. Allowing for changes in financial markets through January 31, 2021, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of January the estimated aggregate assets were $2.15 trillion USD, compared with the estimated aggregate liabilities of $2.53 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, January 2021

 

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

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

January 31, 2021

2.50%

3,714.24

 

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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