September Was Not Kind to Pensions

The estimated aggregate funding level of S&P 500 pensions dropped 2% during September.

The estimated aggregate funding level of pension plans sponsored by Standard & Poor’s (S&P) 1500 companies dropped by 2% to reach 79% of liabilities as of September 30, according to Mercer’s corporate pension funded status index.

After the month’s loss, the estimated aggregate deficit for the S&P 500 stands at $457 billion, up $43 billion compared with the end of August. However, funded status is still up by $47 billion from the $504 billion deficit measured at the end of 2014, Mercer says.

The drop in funded status came after the S&P 500 index lost 2.6% and the MSCI EAFE index lost 5.3% in September. Adding to headwinds during the month, the typical discount rate used to account for projected returns on pension plan contributions before benefit dollars will be paid out decreased by approximately 9 basis points (bps), to reach 4.14%.

“As the third quarter ends with a volatile September, funding levels have returned to December 31, 2014, levels, erasing gains from the first half of this year,” explains Jim Ritchie, a principal in Mercer’s retirement business. “Gains in liabilities due to increased interest rates were offset by losses in the equity markets for the year. Because the Federal Reserve held rates steady this past month, continuing the delay in expected interest-rate increases, we expect to see more plan sponsors implement dynamic de-risking strategies to manage the continued volatility in funded status.”