S&P 1500 pension deficits remain above year-end 2013 levels

  • 04-June-2014
  • United States, New York
  • Growth in equity markets largely offset by falling interest rates leading to slight reduction in deficit for S&P 1500 Pension Plan sponsors
  • Funded status remains down significantly from year end 2013 levels
  • Interest rates fall to lowest levels since April 2013

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies remained relatively unchanged at 84% as of the end of May 2014. Small gains in equity markets were largely offset by growth in plan liabilities due to further declines in interest rates used to calculate corporate pension plan liabilities. The collective estimated deficit of $343 billion as of May 31, 2014, is down $17 billion from the estimated deficit of $360 billion as of April 30, 2014, and up $107 billion from the beginning of the year according to Mercer.[1]  

US equity markets earned about 2.3% during May based on the S&P 500 index. Typical discount rates for pension plans, as measured by the Mercer Yield Curve, declined by 11 basis points to 4.06%, its lowest point in a year, driving liabilities upward.

“Funded status took a bit of a breather in May following the big declines we saw through April.” said Jonathan Barry, a partner in Mercer’s Retirement business. “A fairly modest decline in interest rates was enough to mostly wipe out a pretty positive month of equity returns, highlighting the volatility to which many US plan sponsors are exposed. However, plan sponsors who have implemented risk management strategies have likely cushioned the blow significantly. 

“Long duration fixed income portfolios have continued to perform well, moving in parallel with plan liabilities, and plan sponsors who have implemented risk transfer strategies, such as terminated vested cashouts have effectively taken equity and interest risk off the table for a portion of their plan liabilities, and have been less affected by the decline in rates.” said Mr. Barry.

Mercer estimates the aggregate funded status position of plans operated by S&P 1500 companies on a monthly basis. Figure 1 shows the estimated aggregate surplus/(deficit) position and the funded status of all plans operated by companies in the S&P 1500. The estimates are based on each company’s year-end statement[2] and by projections to May 31, 2014 in line with financial indices. This includes 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 December 31, 2013, was $1.80 trillion, compared with estimated aggregate liabilities of $2.03 trillion. Allowing for changes in financial markets through May 31, 2014, changes to the S&P 1500 constituents and newly released financial disclosures, at the end of May the estimated aggregate assets were $1.87 trillion, compared with the estimated aggregate liabilities of $2.21 trillion. Figure 2 shows the interest rates used in Mercer’s pension funding calculation.

Notes for editors
Get more information on the Mercer Yield Curve.

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 team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 55,000 employees worldwide and annual revenue exceeding $12 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @MercerInsights.

Unless otherwise stated, the calculations are based on the Financial Accounting Standard (FAS) funding position and include analysis of the S&P 1500 companies.

[1]Figures provided by Mercer Investment Consulting, Inc. Funded status figures from 12/31/2013 onwards have been revised to reflect updated 10-K data.

[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.