Funding levels of pension plans sponsored by S&P 1500 companies remained stable during the month of October, with a funded ratio (assets divided by liabilities) of 91% at the end of the month, equal to a month ago when it reached the highest level seen since October 2008. This funded ratio corresponds to a deficit of $185 billion as of October 31, 2013, up slightly from $182 billion a month ago according to Mercer. This is a significant reduction from the estimated deficit of $557 billion as of December 31, 2012.
Despite intra-month volatility in both the equity markets and interest rates due to the government shutdown and threats to not raise the debt ceiling, equity markets saw gains during the month with the S&P 500 index increasing 4.5%. Yields on high grade corporate bond rates (which are used to measure liabilities) fell after congress passed the bill to raise the debt ceiling. The month ended with bond yields lower than the end of September, with the Mercer Yield Curve discount rate for mature pension plans falling from 4.58% to 4.45%, but still up 74 basis points year-to-date.
“As we close in on year end for many sponsors, this funded status improvement is very encouraging,” said Jonathan Barry, a Partner in Mercer’s Retirement business. “We are seeing many sponsors take advantage of this improvement as they plan to lessen the risk in their plan either through LDI or risk transfer strategies. We expect to see significant activity in these areas in 2014.”
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 and by projections to October 31, 2013 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, 2012, was $1.59 trillion, compared with estimated aggregate liabilities of $2.14 trillion. Allowing for changes in financial markets through October 31, 2013, changes to the S&P 1500 constituents and newly released financial disclosures, at the end of October the estimated aggregate assets were $1.83 trillion, compared with the estimated aggregate liabilities of $2.01 trillion.
Notes for editors
Unless otherwise stated, the calculations are based on the Financial Accounting Standard (FAS) funding position and include analysis of the S&P 1500 companies.
Information on the Mercer Yield Curve is available at http://www.mercer.com/pensiondiscount.
The Mercer US Pension Buyout Index may be accessed at www.mercer.com/US-pension-buyout-index
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 20,000 employees are based in more than 40 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 53,000 employees worldwide and annual revenue exceeding $10 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.