May 2015 S&P 500 Pension Funding

May 2015 S&P 500 Pension Funding

S&P 1500 pension funded status sees steady improvement of 9% since the low point in January

  • June 3, 2015
  • United States, New York

Deficits decreased by $43 billion USD in May to $381 billion USD

Interest rates increased by 19 basis points

The S&P 500 index experienced a 1.1% gain in May

The funded status of 83% has improved by 9 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 83% as of May 31st, 2015, due to increases in equity markets and interest rates used to calculate corporate pension plan liabilities. The estimated aggregate deficit of $381 billion USD as of May 31st, 2015 improved by $43 billion from the end of April. Funded status is up by $123 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 gained 1.1% in May while the MSCI EAFE index lost 1.0%. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased by 19 basis points to 3.99%.

“The trend of improvements in funded status since the end of January 2015 continues in May as interest rates rise above 2014 year end levels and equity markets hold steady”, said Jim Ritchie, a principal in Mercer’s retirement business.  “We are seeing many plan sponsors lock into these gains by executing risk transfer strategies like vested terminated cashouts and annuity purchases.”

Mercer estimates the aggregate funded status position of plans sponsored by S&P 1500 companies on a monthly basis. Figure 1 (page 3) 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 May 31, 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 April 30, 2015, was $1.90 trillion USD, as compared with estimated aggregate liabilities of $2.32 trillion USD. Allowing for changes in financial markets through May 31, 2015, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of May the estimated aggregate assets were $1.89 trillion USD, compared with the estimated aggregate liabilities of $2.27 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, May 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

 

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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 @MercerInsights.

[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.

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