S&P 1500 Pension Deficit Decreased in June

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies improved by 1% to 84% as of June 30, according to Mercer.

The estimated aggregate deficit of $346 billion as of June 30 improved by $35 billion from the end of May. Funded status is now up by $158 billion from the $504 billion deficit measured at the end of 2014.

Increases in interest rates used to calculate corporate pension plan liabilities made up for poor equity market performance, Mercer said. The S&P 500 index lost 2.1% in June while the MSCI EAFE index lost 3.0%. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased by 29 basis points to 4.28%.

Daily funded status volatility was higher than normal in June, largely due to uncertainty surrounding the Greek debt crisis. This mitigated what could have been a larger improvement in funded status for the month.

“Just looking at stock market performance, we might have expected pension funded status to decline”, says Matt McDaniel, a partner in Mercer’s retirement business. “But discount rates continue to rise. We now have the highest discount rates we’ve seen since late 2013. Sponsors who were putting off derisking ‘until rates rise’ may now want to consider activating their risk management plans.”