Mercer | September 2016 S&P 1500 Pension Funded Status

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S&P 1500 Pension Funded Status Remains Low as Third Quarter Closes

  • October 5, 2016
  • United States, New York

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies remained low at 77 percent funded status during September 2016, as discount rates increased and equity markets experienced mixed returns. As of September 30, 2016, the estimated aggregate deficit of $551 billion USD represents a decrease of $19 billion as compared to the end of August 2016. The aggregate deficit remains down by $147 billion USD from the $404 billion USD deficit measured at the end of 2015, 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 lost 0.1 percent and the MSCI EAFE index gained 1.0 percent in September. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased by 8 basis points to 3.46 percent. 

“Many plan sponsors are bracing for significant increases in their unfunded pension liabilities as they approach reporting season at the end of the year and higher operating expense as they prepare their budgets for the 2017 fiscal year,” said Jim Ritchie, a partner in Mercer’s retirement business.  “Even if the Fed raises interest rates in November, the impact on long-term rates and equity markets will not likely provide a meaningful improvement in the financial condition of pension plans by the end of the year.” 

Mr. Ritchie continued, “Pension discount rates are down over 80 basis points this year while the S&P 500 index is up a little over 6 percent, a little less than the average assumed return for most pension plans, resulting in large losses in liabilities and smaller losses on assets.  We are seeing many plan sponsors look at alternative expense measures to more effectively manage the pension plan’s expense, like moving to a split discount rate methodology or moving to mark-to-market accounting as well as a number of plans looking to transfer risk to manage PBGC premium costs, as evidenced by the increasing numbers of plans now using Mercer’s Pension Risk Exchange.” 

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 September 30, 2016 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 August  31, 2016 was $1.87 trillion USD, compared with estimated aggregate liabilities of $2.44 trillion USD. Allowing for changes in financial markets through September 30, 2016, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of September the estimated aggregate assets were $1.86 trillion USD, compared with the estimated aggregate liabilities of $2.42 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, September 2016 

See Figure 2 (below) for High Quality Corporate Bond Yield and S&P 500 data points.

Figure 2:

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

March 31, 2015

3.62%

2,067.89

June 30, 2015

4.28%

2,063.11

September 30, 2015

4.14%

1,920.03

December 31, 2015

4.24%

2,043.94

March 31, 2016

3.80%

2,059.74

June 30, 2016

3.47%

2,098.86

July 31, 2016

3.35%

2,173.60

August 31, 2016

3.38%

2,170.95

September 30, 2016

3.46%

2,168.27

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 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 60,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global 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.

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