Funding of S&P 1500 Plans Climbed 3% in 2015

Despite volatile equity markets, interest rate rises helped fuel a 3% increase in the pension funded status of Standard & Poor’s (S&P) 1500 companies, according to data from Mercer.

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies increased from 79% as of December 31, 2014 to 82% as of December 31, 2015. Decreases in equity and fixed income markets were more than offset by increases in interest rates used to calculate corporate pension plan liabilities, increasing funded status by 3%.

The estimated aggregate deficit of $404 billion as of December 31 is approximately $100 billion less than the $504 billion deficit seen at the end of 2014, according to Mercer.

Mercer’s main findings for 2015 include:

  • Despite volatile equity markets, funded status increased in 2015;
  • Deficits decreased in 2015, coming closer to the levels seen at the end of 2013;
  • Deficits decreased, from $504 billion at 2014 year-end, to $404 billion at the end of 2015, which will drive adjustments to balance sheets and 2016 P&L expense; and
  • Interest rates increased by 43 basis points from 2014 year-end, more than offsetting the negative impact of decreases in equity markets in 2015.

The S&P 500 index decreased by 0.7% during 2015 and the MSCI EAFE index decreased by 3.3%. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased by 43 basis points to 4.24%.

”Plan sponsors have been waiting for years to see an increase in interest rates help improve their funded status,” says Matt McDaniel, a partner in Mercer’s retirement business. “In 2015, we took a small step in that direction. If rates continue to rise, funded status will further improve. But, recent history has shown us how volatile rates can be, so plan sponsors need to define now the specific actions they will take as rates rise, so they can be ready to execute. Otherwise, they risk falling into the same trap as 2008, when a majority of plans were fully funded but failed to lock in gains.”

Mercer estimates the aggregate funded status position of plans sponsored by S&P 1500 companies on a monthly basis. The estimates are based on each company’s year-end statement and by projections to December 31, 2015 in line with financial indices. The estimates include U.S. 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, 2014, was $1.89 trillion, compared with estimated aggregate liabilities of $2.39 trillion. Allowing for changes in financial markets through December 31, 2015, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of December the estimated aggregate assets were $1.80 trillion, compared with estimated aggregate liabilities of $2.20 trillion.