Pension plans sponsored by S&P 1500 companies had a $213 billion deficit as August 31. The funded ratio remained at 89%, 15% higher than the end of 2012.
Mercer noted equity markets saw losses during the month, with the S&P 500 Index falling 3.1% and the MSCI EAFE falling 1.6%. Discount rates continued to rise, which reduced the liabilities. The Mercer Yield Curve discount rate for mature pension plans was up 17 basis points for the month and 92 basis points year to date.
“While there was no significant change in the funded ratio, there was a lot of volatility underpinning both the asset and liability numbers this month,” said Jonathan Barry, a partner in Mercer’s retirement business. “We saw a lot of uncertainty in the market around the Federal Reserve’s bond buying program, coupled with concerns around global geopolitical events, resulting in equity markets performing quite poorly for the month. However, this was essentially offset by an increase in bond rates, which largely derived from these same factors. More proof that plan sponsors need to stay vigilant in keeping on top of their funded status, as there can be a lot going on under the hood in any given month, and sponsors who are looking to take risk off the table may miss opportunities if they are not paying attention.”
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 by projections to August 31, 2013, in line with financial indices. 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 $1.73 trillion, compared with the estimated aggregate liabilities of $1.94 trillion.