Corporate Pension Deficits Dipped $43B in May

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies showed marginal improvement, rising by 1%, to 83%, as of May 31, according to Mercer.

Increases in the interest rates used to calculate corporate pension plan liabilities coupled with a strong equities market lifted funded status by 9 percentage points, from 74% at the end of January, to 83%. The estimated aggregate deficit of $381 billion as of May 31 improved by $43 billion from the end of April. 

Funded status is up by $123 billion from the $504 billion deficit measured at the end of 2014. The S&P 500 index gained 1.1% in May while the MSCI EAFE index lost 1%. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased by 19 basis points, to 3.99%.

“The trend of improvements in funded status since the end of January 2015 continues in May, as interest rates rise above 2014 year-end levels and equity markets hold steady,” says Jim Ritchie, a principal in Mercer’s retirement business. “We are seeing many plan sponsors lock into these gains by executing risk transfer strategies like vested terminated cashouts and annuity purchases.”

According to Mercer, the estimated aggregate value of pension plan assets of the S&P 1500 companies as of April 30, was $1.90 trillion, compared with estimated aggregate liabilities of $2.32 trillion. Allowing for changes in financial markets through May 31, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of May the estimated aggregate assets were $1.89 trillion, compared with the estimated aggregate liabilities of $2.27 trillion.