S&P 1500 Pension Funded Status Increased by 5 Percent in March


New York, N.Y., April 5, 2021
– The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies increased by 5 percent in March 2021 to 95 percent as a result of an increase in discount rates and an increase in equity markets. As of March 31, 2021, the estimated aggregate deficit of $118 billion USD decreased by $118 billion USD as compared to $236 billion USD measured at the end of February according to Mercer1,  a global consulting leader and a business of Marsh McLennan (NYSE: MMC).

 

The S&P 500 index increased 4.24 percent and the MSCI EAFE index increased 1.82 percent in March. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased from 2.76 percent to 3.01 percent.

 

“By the end of March we saw funded status soar to the highest level in over seven years,” said Scott Jarboe, a Partner in Mercer’s Wealth Business. “Equity markets continued to reach new highs and interest rates increased markedly during the month propelling the aggregate funded status across the S&P 1500 to 95%.  Furthermore, funding relief was included as part of the recently passed American Rescue Plan Act which will reduce required contributions over the next several years. Plan sponsors are in a unique position and should take a fresh look at their investment policies and the array of risk transfer strategies available as the pension environment has changed drastically in just two months.”  

 

“With the uptick in performance, our defined benefit outsourced chief investment officer (OCIO) clients have hit 38 triggers during 2021 based on funded status or interest rate levels” said Christine Mahoney, who leads Mercer’s US Wealth business.  “This highlights the potential benefit of having a nimble governance process in place ahead of time to be able to identify and act on market changes as they arise.”

 

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. For S&P 1500 companies that do not have a December 31 fiscal year end, this is based on projections of their reported financial statements adjusted from each company’s financial year end to December 31 in line with financial indices. The estimates are based on each company’s latest available year-end statement2  and by projections to March 31, 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 February 28, 2021 was $2.15 trillion USD, compared with estimated aggregate liabilities of $2.38 trillion USD. Allowing for changes in financial markets through March 31, 2021, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of March the estimated aggregate assets were $2.18 trillion USD, compared with the estimated aggregate liabilities of $2.30 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 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

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

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

 

[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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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 approximately 25,000 employees are based in 43 countries and the firm operates in 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 over $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.

 

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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