S&P 1500 Pension Funding Levels Continue Rallying

The aggregate deficit decreased by $150 billion during the month, resulting in a $269 billion deficit as of the end of May. The funded ratio (assets divided by liabilities) increased from 80% to 86% during May, to close out the month at the highest level since July 2011.

A continuing bull market in equities that saw another 2.3% growth during May improved asset levels, while a 46 basis points rise in high quality corporate bond rates reduced the estimated liabilities by over 7%.

“We have seen great leaps in funded status in the first half of 2013, and plan sponsors will certainly be hoping for more of the same over the coming months,” said Jonathan Barry, a partner in Mercer’s Retirement business. “This improvement dovetails nicely with feedback we are getting from clients who have implemented a glide path strategy. They are reaping the rewards of this rapid improvement and locking in the gains.”

Richard McEvoy, another partner in Mercer’s Investment business, added, “We have executed over 100 dynamic de-risking triggers on behalf of clients since the financial crisis with a significant uptick in activity over the past month. This also highlights the benefit of having a nimble execution process in place ahead of time to capitalize on market changes as they arise.”

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 May 31, 2013 in line with financial indices. 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 May 31, 2013, changes to the S&P 1500 constituents and newly released financial disclosures, the estimated aggregate assets were $1.70 trillion, compared with the estimated aggregate liabilities of $197 trillion.