Mercer | March 2017 S&P 1500 Pension Funded Status

Mercer | March 2017 S&P 1500 Pension Funded Status

S&P 1500 Pension Funded Status Increased by One Percent in March

  • April 5, 2017
  • United States, New York

New York, April 5, 2017 -- The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies increased by one percent to 83% funded status in March 2017, as an increase in discount rates was partially offset by mixed equity markets. As of March 31, 2017, the estimated aggregate deficit of $391 billion USD represents decrease of $9 billion as compared to the deficit measured at the end of February 2017. The aggregate deficit is down $17 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 of individuals, and a wholly-owned subsidiary of Marsh & McLennan Companies (NYSE: MMC).

The S&P 500 index remained nearly level and the MSCI EAFE index gained 2.3 percent in March. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased by 8 basis points to 4.01 percent.

“The current economic and political environment is making plan sponsors frustrated with the lack of progress on the funded status of their pension plans as levels remain similar to where they were eight or nine years ago,” said Jim Ritchie, a partner in Mercer’s wealth business.  “Plan sponsors should consider re-evaluating their risk appetites in these uncertain times.  Despite the Federal Reserve’s indications that short term rates may steadily increase in the near future, there is still quite a bit of uncertainty on what will happen with long-term rates and equity markets, which are two main factors that affect the funded status of pension plans.  Those plan sponsors that are relying on long-term rates to rapidly rise in the near future may continue to be frustrated with the lack of progress on their funded status.  Plan sponsors should look at multiple future economic conditions to get a good perspective on the future financial condition of their pension 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 March 31, 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 February 28, 2017 was $1.84 trillion USD, compared with estimated aggregate liabilities of $2.24 trillion USD. Allowing for changes in financial markets through March 31, 2017, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of March the estimated aggregate assets were $1.85 trillion USD, compared with the estimated aggregate liabilities of $2.24 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, March 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

March 31, 2016

3.80%

2,059.74

June 30, 2016

3.47%

2,098.86

September 30, 2016

3.46%

2,168.27

December 31, 2016

4.04%

2,238.83

January 31, 2017

4.04%

2,278.87

February 28, 2017

3.93%

2,363.64

March 31, 2017

4.01%

2,362.72

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

Mercer Investment Consulting, LLC is a federally registered investment adviser under the Investment Advisers Act of 1940, as amended, providing nondiscretionary and discretionary investment advice to its clients on an individual basis. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Mercer’s Form ADV Part 2A & 2B can be obtained by written request directed to:  Compliance Department, Mercer Investments, 701 Market Street, Suite 1100, St. Louis, MO  63101.

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

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