S&P 1500 Pension Funded Status Decreased by 1 Percent in June

 

New York, N.Y., July 2, 2020 – The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies decreased by 1 percent in June 2020 to 80 percent as a result of a decrease in discount rates which was partially offset by an increase in equities. As of June 30, 2020, the estimated aggregate deficit of $493 billion USD increased by $17 billion USD as compared to $476 billion USD measured at the end of May according to Mercer,[1] a global consulting leader and a business of Marsh & McLennan (NYSE: MMC).

 

The S&P 500 index increased 1.84 percent and the MSCI EAFE index increased 3.22 percent in June. Typical discount rates for pension plans as measured by the Mercer Yield Curve decreased from 2.69 percent to 2.57 percent.

 

“Funded status slightly decreased in June, but still remains well above its lows from March,” said Matt McDaniel, a partner in Mercer’s Wealth business. “Equity markets continued their rally despite a dip at the end of the month. However, high quality corporate interest rates continued their downward slide to yet another all-time low, as credit spreads tightened during the month. Despite the turmoil in the markets we still see opportunities for plan sponsors to transfer risk. We continue to see extremely attractive pricing for annuity buyouts, and with the decrease in interest rates since the beginning of the year lump sum windows may be attractive for many plans.”

 

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, 2020 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 May 31, 2020 was $2.00 trillion USD, compared with estimated aggregate liabilities of $2.48 trillion USD. Allowing for changes in financial markets through June 30, 2020, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of June the estimated aggregate assets were $2.03 trillion USD, compared with the estimated aggregate liabilities of $2.52 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 2020

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

August 31, 2019

2.95%

2,926.46

September 30, 2019

3.08%

2,976.74

October 31, 2019

3.08%

3,037.56

November 30, 2019

3.10%

3,140.98

December 31, 2019

3.18%

3,230.78

January 31, 2020

2.85%

3,225.52

February 29, 2020

2.65%

2,954.22

March 31, 2020

3.04%

2,584.59

April 30, 2020

2.77%

2,912.43

May 31, 2020

2.69%

3,044.31

June 30, 2020

2.57%

3,100.29

 

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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