US Pension Plans’ funded ratio lower in March

US Pension Plans’ funded ratio lower in March

US Pension Plans’ funded ratio lower in March says Mercer

  • 03-April-2014
  • United States, New York

According to Mercer, the estimated funding levels of pension plans sponsored by S&P 1500 companies fell 2% in March to 85%. While flat equity markets and interest rates did not affect funded ratios during the month, Mercer made adjustments based upon actual funded status released in filings for the 2013 year end. The collective deficit of $332 billion as of March 31, 2014, is up $56 billion from the estimated deficit of $276 billion as of February 28, 2014, according to Mercer.[1]  

Global equity markets were mostly flat during March with losses outside the US offsetting modest domestic gains of 0.7%, based on the S&P 500 index. The Mercer Yield Curve discount rate for mature pension plans was up only 2 basis points to 4.28% during the month leaving liabilities mostly unchanged.

Mercer estimates that these factors would have left funded status level during March. However, information released in year-end financial statements showed a slightly lower actual funded status than previously estimated. The new data that was released by most of the S&P 1500 plan sponsors with December 31 fiscal year-end measurement dates reduced the aggregate funded ratio by approximately 2%.

The newly reported numbers indicate that asset values were slightly lower than previous estimates, confirming the move towards higher fixed income allocations during 2013 as many plan sponsors made asset allocation changes to lock in gains from their equity returns, a trend that Mercer expects to continue in 2014. In addition, liabilities were somewhat higher than estimated, as some plan sponsors have already adopted more conservative assumptions regarding how long pensioners live, resulting in increased liabilities.

“This month is a reminder of the various factors that can affect the funded status of pension plans,” said Jim Ritchie, a principal in Mercer’s retirement business. “We are starting to see the potential impact of new mortality standards on plan sponsor’s balance sheets.   This is creating an increased interest from plan sponsors in risk transfer strategies, such as annuity purchases or lump sum cashouts in 2014.  The first quarter of 2014 has reminded us how quickly the funded status of a pension plan can change, creating the need for a well-developed dynamic investment policy and overall risk strategy to take advantages of opportune market conditions.”

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 March 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 $1.85 trillion, compared with estimated aggregate liabilities of $1.96 trillion. Allowing for changes in financial markets through March 31, 2014, changes to the S&P 1500 constituents and newly released financial disclosures, at the end of February the estimated aggregate assets were $1.83 trillion, compared with the estimated aggregate liabilities of $2.16 trillion.

Information on the Mercer Yield Curve is available at

Mercer US Pension Buyout Index may be accessed at

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 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.

[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.