This figure is equal to one month ago, when it reached the highest level seen since October 2008. This funded ratio corresponds to a deficit of $185 billion as of October 31, 2013, up slightly from $182 billion one month ago, said Mercer. This is a significant reduction from the estimated deficit of $557 billion as of December 31, 2012.
Despite intra-month volatility, in both the equity markets and interest rates, due to the government shutdown and threats to not raise the debt ceiling, equity markets saw gains during the month with the S&P 500 Index increasing 4.5%. Yields on high grade corporate bond rates fell after Congress raised the U.S. debt ceiling. The month ended with bond yields lower than the end of September, with the Mercer Yield Curve discount rate for mature pension plans falling from 4.58% to 4.45%, but still up 74 basis points year to date.
“As we close in on year end, for many plan sponsors this funded status improvement is very encouraging,” said Jonathan Barry, a partner in Mercer’s Retirement business. “We are seeing many plan sponsors take advantage of this improvement as they plan to lessen the risk in their plan either through LDI (liability driven investing) or risk transfer strategies. We expect to see significant activity in these areas in 2014.”
The estimated aggregate value of pension plan assets of the S&P 1500 companies as of December 31, 2012, was $1.59 trillion, compared with estimated aggregate liabilities of $2.14 trillion. Allowing for changes in financial markets through October 31, 2013, changes to the S&P 1500 constituents and newly released financial disclosures, at the end of October the estimated aggregate assets were $1.83 trillion, compared with the estimated aggregate liabilities of $2.01 trillion.