Mercer | May 2017 S&P 1500 Pension Funded Status

Mercer | May 2017 S&P 1500 Pension Funded Status

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S&P 1500 Pension Funded Status Remained Level in May

  • June 6, 2017
  • United States, New York

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies remained level at 83% funded status in May 2017, with a decrease in discount rates offsetting positive equity markets. As of May 31, 2017, the estimated aggregate deficit of $391 billion USD represents a decrease of $1 billion as compared to the deficit measured at the end of April 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, and a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC). 

The S&P 500 index gained 1.2 percent and the MSCI EAFE index gained 3.1 percent in May. Typical discount rates for pension plans as measured by the Mercer Yield Curve decreased by 12 basis points to 3.82 percent. 

“While interest rates are almost back down to pre-election levels, those plan sponsors who follow a glidepath investment strategy were more likely to take advantage of higher interest rates after the election than those plan sponsors that use more traditional investment strategies,” said Jim Ritchie, a partner in Mercer’s Wealth business. “Interest rates initially spiked about 50 basis points after the election and have slowly declined since the beginning of the year. Plan sponsors using a glidepath strategy likely bought long-term bonds at cheaper prices last November and are reaping the rewards of declining interest rates while also improving their risk profile.” 

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 May 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 April 31, 2017 was $1.86 trillion USD, compared with estimated aggregate liabilities of $2.25 trillion USD. Allowing for changes in financial markets through May 31, 2017, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of May the estimated aggregate assets were $1.90 trillion USD, compared with the estimated aggregate liabilities of $2.29 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, May 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

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, 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.

 

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