Funding levels of pension plans sponsored by S&P 1500 companies continued a strong rebound in 2013, with the aggregate deficit decreasing by $10 billion during the month of July, resulting in a $212 billion deficit as July 31, 2013, according to Mercer. The funded ratio (assets divided by liabilities) increased from 88% to 89% during July, up 15% since the end of 2012 and reached their highest level since October 2008.
Equity markets staged a strong performance during the month with the S&P 500 index rising 5.1%. Discount rates dropped back slightly in July after sharp increases in May and June, dampening the improvement slightly.
According to Mercer analysis, an estimated 17% of plan sponsors had assets in excess of their pension obligations as of July 31 2013, compared to only 4% at December 31, 2012. Mercer also estimates that if discount rates rose another 1%, the number of sponsors with fully funded pension obligations could exceed 40%.
“So far, plan sponsors are having a great year in terms of funded status improvement,” said Jonathan Barry a Partner in Mercer’s Retirement consulting group. “As a result, many sponsors are beginning to take preparatory steps not only in terms of asset allocation changes but also in preparing for pension buyouts and cashouts that entail a series of transition, legal and administrative steps. Sponsors don’t want to be caught napping as these opportunities arise“
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 July 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 July 31, 2013, changes to the S&P 1500 constituents and newly released financial disclosures, the estimated aggregate assets were $1.76 trillion, compared with the estimated aggregate liabilities of $1.98 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.