Funding for S&P 1500 Pensions Improves

These plans show another 2% improvement in November, says consulting firm Mercer, resulting in a funded ratio of 93% at the end of the month and a 19% overall improvement so far this year. This funded ratio corresponds to a deficit of $138 billion as of November 30, down from $185 billion a month ago and $557 billion as of December 31, 2012.

Mercer research shows that equity markets enjoyed steady growth during November, with the S&P 500 Index increasing 2.8%. Yields on high-grade corporate bond rates also increased, which led to a reduction in pension plan liabilities. The Mercer Yield Curve discount rate for mature pension plans increased from 4.45% to 4.59% during the month and is up 88 basis points this year.

“Plan sponsors are significantly closer to full funding than they have been at any time in the recent past,” says Jonathan Barry, a partner in Mercer’s retirement business in New York. “This potentially opens up opportunities to manage pension risk that may not have been practical a year ago, such as annuity buyouts or cashout offers to participants. We are seeing a lot of plan sponsors get organized now to address the legal, administrative and compliance reviews that are needed so they can move ahead with a pension risk transfer exercise in 2014.”

Mercer estimates the aggregate funded status position of plans operated by S&P 1500 companies on a monthly basis. The estimates are based on each company’s year-end statement and projections that are in line with financial indices. Estimates cover U.S. domestic qualified and nonqualified plans, as well as nondomestic plans.

The estimated aggregate value of pension plan assets of the S&P 1500 companies as of December 2012 was $1.59 trillion, compared with estimated aggregate liabilities of $2.14 trillion. Allowing for changes in financial markets through November 30, 2013, as well as changes to the S&P 1500 constituents and newly released financial disclosures, the estimated aggregate assets at the end of November were $1.84 trillion, compared with the estimated aggregate liabilities of $1.98 trillion.

The calculations by Mercer, unless otherwise stated, are based on the Financial Accounting Standard funding position and include analysis of the S&P 1500 companies.