Mercer | S&P 1500 Pension Funded Status for July 2016

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Pension Plans Recover Slightly Following Brexit: S&P 1500 Pension Funded Status Increased by One Percent in July

  • August 3, 2016
  • United States, New York

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies increased by one percentage point during July 2016, reaching 77 percent funded status, as positive equity markets more than offset a further decrease in discount rates. As of July 31, 2016, the estimated aggregate deficit of $562 billion USD represents a decrease of $6 billion as compared to the end of June 2016. However, this aggregate deficit remains down by $158 billion USD from the $404 billion USD deficit measured at the end of 2015, according to Mercer,[1] a global consulting leader in advancing health, wealth and careers of individuals, and a wholly-owned subsidiary of Marsh & McLennan Companies (NYSE: MMC). 

The S&P 500 index gained 3.6 percent and the MSCI EAFE index gained 5.0 percent in July. Typical discount rates for pension plans as measured by the Mercer Yield Curve decreased by 12 basis points to a low of 3.35 percent. 

“The continuing decrease in long term interest rates and the strong returns in the equity markets in July continue to remind us that plan sponsors need a sound strategy for managing the risk and volatility in their pension plans,” said Jim Ritchie, a partner in Mercer’s retirement business.  “Long term interest rates continue to drop, increasing the liabilities on plan sponsor’s balance sheets.  While the drop in rates this month was offset by strong equity returns, the S&P 500 peaked on July 22nd and stagnated for the rest of the month.  If these trends continue, pension plans will create quite a bit of heartburn for plan sponsors at year end when sponsors have to update the funded status of their plans on their financial statements.  Many plan sponsors that are starting their budgeting for 2017 are having a difficult time deciding how to budget for pension expense in 2017.  We are seeing more and more plan sponsors move to de-risking strategies as well as other financial management strategies to effectively deal with this volatility.  Those plan sponsors that are waiting for interest rates to rise before implementing a sound dynamic de-risking policy may be waiting a long time.” 

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 July 31, 2016 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 June 30, 2016 was $1.83 trillion USD, compared with estimated aggregate liabilities of $2.40 trillion USD. Allowing for changes in financial markets through July 31, 2016, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of July the estimated aggregate assets were $1.88 trillion USD, compared with the estimated aggregate liabilities of $2.44 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, July 2016 

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

Figure 2: Sample 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

March 31, 2015

3.62%

2,067.89

June 30, 2015

4.28%

2,063.11

September 30, 2015

4.14%

1,920.03

December 31, 2015

4.24%

2,043.94

March 31, 2016

3.80%

2,059.74

June 30, 2016

3.47%

2,098.86

July 31, 2016

3.35%

2,173.60

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 43 countries and the firm operates in over 140 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 60,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global 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 @Mercer.

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[1]Figures provided by Mercer Investment Consulting, Inc. 

[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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