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


New York, N.Y., July 6, 2021
– The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies decreased by 1 percent in June 2021 to 94 percent as a result of a decrease in discount rates partially offset by an increase in US equity markets. As of June 30, 2021, the estimated aggregate deficit of $153 billion USD increased by $47 billion USD as compared to $106 billion USD measured at the end of May according to Mercer1,  a global consulting leader and a business of Marsh & McLennan (NYSE: MMC).

 

The S&P 500 index increased 2.22 percent and the MSCI EAFE index decreased 1.25 percent in June. Typical discount rates for pension plans as measured by the Mercer Yield Curve decreased from 2.84 percent to 2.67 percent.

 

“For the second consecutive month pension funded status took a small step back,” said Matt McDaniel, a Partner in Mercer’s Wealth Business. “After a big leap in funded status earlier this year, funded status slowly crept lower in the second quarter on declining interest rates. Even though the Fed recently bumped up the timeline for rate increases and increased inflation expectations for the year, US equity markets were unfazed reaching fresh all-time highs and interest rates continued their slide. Right now nothing seems to be slowing down the bull market but plan sponsors should be prepared for anything as we all know the tide can turn quickly.”   

 

Mercer estimates the aggregate funded status position of plans sponsored by S&P 1500 companies on a monthly basis. Figure 1 (below) shows 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 statement2  and by projections to June 30, 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 May 31, 2021 was $2.25 trillion USD, compared with estimated aggregate liabilities of $2.36 trillion USD. Allowing for changes in financial markets through June 30, 2021, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of June the estimated aggregate assets were $2.28 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

S&P 1500 Pension Funded Status Decreased by 1 Percent in June
Source: Mercer, June 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

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

February 28, 2021

2.76%

3,811.15

March 31, 2021

3.01%

3,972.89

April 30, 2021

2.89%

4,181.17

May 31, 2021

2.84%

4,204.11

June 30, 2021

2.67%

4,297.50

[1] Figures provided by Mercer Investments 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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S&P1500 Funded Status Performance

Funded status performance is presented for illustration purposes only. There is no assurance that LDI investment objectives will be achieved. All investments experience gain or loss. Funded status performance data shown above represents past performance, which is no guarantee of future results. Additionally, funded status performance is unable to take into account plan contributions that may materially impact funded status as well as possible accounting techniques or methods that may evolve over time in calculating funded status. Specific investments and asset allocations vary across the Mercer LDI clients and S&P 1500 plans, due to factors such as, timing of investment decisions, investment objectives, risk tolerance, funded status levels, and perception of investment opportunities. Actual funded status performance of S&P 1500 plans may significantly differ from the estimated data shown herein. The estimated S&P 1500 funded status is used to illustrate broad market conditions for the relevant time periods and, depending upon the portfolio strategy, allocation, and a variety of other factors, should only be used as a broad based indicator of general LDI performance. Asset allocations of the LDI clients for the time periods indicated may have varied greatly from the average S&P 1500 asset allocations represented over the same time period. Mercer’s LDI funded status performance for each individual LDI client is available upon request.

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