Mercer | June 2017 S&P 1500 Pension Funded Status

Mercer | June 2017 S&P 1500 Pension Funded Status

S&P 1500 Pension Funded Status Decreased by One Percent in June

  • July 10, 2017
  • United States, New York

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies decreased by one percent to 82% funded status in June 2017, with a decrease in discount rates partially offset by mixed equity markets. As of June 30, 2017, the estimated aggregate deficit of $416 billion USD represents an increase of $25 billion as compared to the deficit measured at the end of May 2017. The aggregate deficit is up $8 billion USD from the $408 billion measured at the end of 2016 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 gained 0.5 percent and the MSCI EAFE index lost 0.4 percent in June. Typical discount rates for pension plans as measured by the Mercer Yield Curve decreased by 4 basis points to 3.78 percent.

“Another Fed rate hike resulted again in a downward tick in pension discount rates,” said Matt McDaniel, a Partner in Mercer’s US Wealth business. “It is yet another reminder that the long duration rates used for pension liabilities are much more sensitive to supply and demand factors than to short-term Fed policy decisions. This means that the future rate increases planned by the Fed probably won’t directly translate to improved pension funded status. Sponsors need a strategy to deal with a potentially flattening yield curve – those holding fixed income investments in a traditional aggregate strategy may find themselves hit the hardest as rates increase.”                           

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 June 30, 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 May 31, 2017 was $1.90 trillion USD, compared with estimated aggregate liabilities of $2.29 trillion USD. Allowing for changes in financial markets through June 30, 2017, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of June the estimated aggregate assets were $1.90 trillion USD, compared with the estimated aggregate liabilities of $2.32 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, June 2017

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

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

March 31, 2017

4.01%

2,362.72

April 30, 2017

3.94%

2,384.20

May 31, 2017

3.82%

2,411.80

June 30, 2017

3.78%

2,423.41

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 careers 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 annual revenue of $13 billion and 60,000 colleagues worldwide, 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.

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[1]Figures provided by Mercer Investment Consulting 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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