S&P 1500 Pension Funded Status Remained Level in September

New York, N.Y., October 5, 2020 – The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies remained level in September 2020 at 83 percent as a result of a decrease in equity markets offset by an increase in discount rates. As of September 30, 2020, the estimated aggregate deficit of $433 billion USD remained unchanged as compared to $433 billion USD measured at the end of August according to Mercer,[1] a global consulting leader and a business of Marsh & McLennan (NYSE: MMC).

 

The S&P 500 index decreased 3.92 percent and the MSCI EAFE index decreased 2.90 percent in September. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased from 2.46 percent to 2.53 percent.

 

“Funded status was flat month over month as equity market declines were offset by a rise in interest rates,” said Scott Jarboe, a partner in Mercer’s Wealth business. “We saw the S&P 500 pull back after reaching an all-time high in August and interest rates rose slightly during the month with the Fed indicating they would keep short term rates low for the foreseeable future. Plan sponsors should review 2021 budgets and understand the sensitivity of pension liability and expense in light of the persisting low rate environment and potential for a pull back in equity markets as we approach the election and end of the 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 September 30, 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 August 31, 2020 was $2.12 trillion USD, compared with estimated aggregate liabilities of $2.55 trillion USD. Allowing for changes in financial markets through September 30, 2020, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of September the estimated aggregate assets were $2.06 trillion USD, compared with the estimated aggregate liabilities of $2.50 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 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

November 30, 2019

3.10%

3,140.98

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

 

 

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.

 

 

 


[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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