June 2015 Pension Funding

June 2015 Pension Funding

Newsroom

S&P 1500 pension funded status continues to improve despite falling equity markets

  • July 6, 2015
  • United States, New York

·         Deficits decreased by $35 billion USD in June to $346 billion USD

·         Interest rates increased by 29 basis points

·         The S&P 500 index experienced a 2.1% loss in June

·         The funded status of 84% has improved by 10 percentage points from 74% at the end of January 2015        

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies improved by 1% to 84% as of June 30, 2015, as increases in interest rates used to calculate corporate pension plan liabilities made up for poor equity market performance. The estimated aggregate deficit of $346 billion USD as of June 30, 2015 improved by $35 billion from the end of May. Funded status is now up by $158 billion USD from the $504 billion USD 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 index lost 2.1% in June while the MSCI EAFE index lost 3.0%. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased by 29 basis points to 4.28%. Daily funded status volatility was higher than normal in June, largely due to uncertainty surrounding the Greek debt crisis. This mitigated what could have been a larger improvement in funded status for the month.

“Just looking at stock market performance, we might have expected pension funded status to decline”, said Matt McDaniel, a partner in Mercer’s retirement business.  “But discount rates continue to rise.  We now have the highest discount rates we’ve seen since late 2013. Sponsors who were putting off derisking ‘until rates rise’ may now want to consider activating their risk management plans.”

Mr. McDaniel also noted that the improvement in funded status among many sponsors is driving interest in the annuity buyout market and related support services such as the Mercer Pension Risk Exchange.

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 June 30, 2015 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 May 31, 2015, was $1.89 trillion USD, as compared with estimated aggregate liabilities of $2.27 trillion USD. Allowing for changes in financial markets through June 30, 2015, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of June the estimated aggregate assets were $1.83 trillion USD, compared with the estimated aggregate liabilities of $2.18 trillion USD. 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, June 2015

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

March 31, 2015

3.62%

2,067.89

April 30, 2015

3.80%

2,085.51

May 31, 2015

3.99%

2,107.39

June 30, 2015

4.28%

2,063.11

- Ends -

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 @Mercer.

[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.

[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.

 

 

 

 

 

CONTACT INFORMATION