Corporate Pensions Slipped 2% in Rocky August

S&P 1500 pension funded status weathered a volatile month with a 2% decline, Mercer says.

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies slipped by 2%, to 81%, as of August 31, according to Mercer.

Rising rates mitigated losses in equity markets. As of August 31, the estimated aggregate deficit of $423 billion increased by $44 billion compared with the end of July. Funded status is now up by $81 billion from the $504 billion deficit measured at the end of 2014

The S&P 500 index lost 6.3% and the MSCI EAFE index lost 7.6% in August. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased by approximately 11 basis points, to 4.22%.

“While the decline for the month was only 2%, August was a very bumpy ride for plan sponsors,” says Matt McDaniel, a partner in Mercer’s retirement business. “Turmoil in equity markets stemming from concerns in China led to a decrease in funded status of more than 5% through August 24. Fortunately, a partial recovery, combined with a rise in discount rates late in the month, allowed pension plans to recover much of the loss.”

According to Mercer, the estimated aggregate value of pension plan assets of the S&P 1500 companies as of July 31, was $1.84 trillion, compared with estimated aggregate liabilities of $2.22 trillion. Allowing for changes in financial markets through August 31, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of August the estimated aggregate assets were $1.77 trillion, compared with the estimated aggregate liabilities of $2.20 trillion.