According to Mercer, the estimated funding levels of pension plans sponsored by S&P 1500 companies fell another 1% in April to 84%. Equity market gains were not enough to offset the liability growth of pension plan sponsors in the S&P 1500. The collective deficit of $360 billion as of April 30, 2014, is up $28 billion from the estimated deficit of $332 billion as of March 31, 2014, and up from $257 billion from the beginning of the year according to Mercer.
US equity markets earned about 0.6% during April based on the S&P 500 index. The Mercer Yield Curve discount rate for mature pension plans was down 11 basis points to 4.17%, its lowest point in almost a year, driving liabilities upward.
“Long-term interest rates continue to decline in 2014, taking away about half of the improvements that we saw in 2013,” said Jim Ritchie, a principal in Mercer’s retirement business. “While many plan sponsors and investment analysts expect interest rates to rise in the future, any decreases in long-term rates over a short period of time can be very disruptive to plan sponsors. The first few months of the year are a stark reminder of how quickly pension gains can be erased. However, plan sponsors who have implemented risk management strategies, such as glidepath policies or risk transfer programs, are faring much better this year than those sponsors who did not implement such strategies.”
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 April 30, 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 $1.85 trillion, compared with estimated aggregate liabilities of $1.96 trillion. Allowing for changes in financial markets through April 30, 2014, changes to the S&P 1500 constituents and newly released financial disclosures, at the end of April the estimated aggregate assets were $1.84 trillion, compared with the estimated aggregate liabilities of $2.20 trillion.
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 www.mercer.com/US-pension-buyout-index.
Unless otherwise stated, the calculations are based on the Financial Accounting Standard (FAS) funding position and include analysis of the S&P 1500 companies.
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