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

New York, N.Y., November 3, 2020 – The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies decreased by 1 percent in October 2020 to 82 percent as a result of a decrease in equity markets partially offset by an increase in discount rates. As of October 31, 2020, the estimated aggregate deficit of $441 billion USD increased by $8 billion USD as compared to $433 billion USD measured at the end of September according to Mercer,[1] a global consulting leader and a business of Marsh & McLennan (NYSE: MMC).

 

The S&P 500 index decreased 2.77 percent and the MSCI EAFE index decreased 4.06 percent in October. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased from 2.53 percent to 2.64 percent.

 

“Funded status dropped one percent in October as equity markets pulled back,” said Matt McDaniel, a partner in Mercer’s Wealth business. “GDP grew over 7% in the third quarter but we saw equity markets sell off late in the month due to new COVID-19 cases rising rapidly and uncertainty with respect to the U.S. presidential election. A few months ago additional pension funding relief, which could help mitigate a potential end of year market slide, looked promising. However, additional relief looks less likely now. Plan sponsors preparing for 2021 may notice an uptick in cash contributions as interest rate relief from several years ago starts to phase out next year.”

 

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 October 31, 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 September 30, 2020 was $2.06 trillion USD, compared with estimated aggregate liabilities of $2.50 trillion USD. Allowing for changes in financial markets through October 31, 2020, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of October the estimated aggregate assets were $2.03 trillion USD, compared with the estimated aggregate liabilities of $2.47 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, October 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

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

July 31, 2020

2.20%

3,271.12

August 31, 2020

2.46%

3,500.31

September 30, 2020

2.53%

3,363.00

October 31, 2020

2.64%

3,269.96

 

 

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.

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