- Improvement of $185 billion over year-end deficit of $557 billion, more than a 30% reduction
- Aggregate pension deficit shrank by $107 billion in March to $372 billion
- Company 10-K filings show actual funded status better than previously estimated, partly due to greater than expected contributions
The aggregate deficit in pension plans sponsored by S&P 1500 companies improved significantly in the first quarter of 2013, decreasing by $185 billion from the record year end 2012 deficit, and landing at $372 billion as of the end of March 2013, according to Mercer. The month of March was very good to plan sponsors, with deficits improving by $107 billion in the month alone. The funded ratio (assets divided by liabilities) improved to 82% at the end of March compared to 77% at the end of February and 74% at December 31, 2012.
The significant improvement of the past month was driven by positive equity growth during the month which gained 3.75%, driving the S&P to record highs by the end of March. The high quality corporate bond rates which affect the liabilities increased slightly.
In addition to investment performance, assets have also grown due to contributions. During the fiscal year ending in 2012, S&P 1500 plan sponsors contributed over $80 billion to their plans, which is $20 billion more than they had expected to at this time last year despite the enactment of MAP-21, which provided sponsors with the opportunity to lower contributions from prior requirements.
“Certainly the funded status improvement we saw in the first quarter is a great outcome for most plan sponsors” said Jonathan Barry, a partner in Mercer’s Retirement business. “However, there is still some heavy lifting for plan sponsors to do to get to a fully funded position. Also, we saw a similar pattern in 2011 and 2012, where funded status improved significantly in the first quarter, only to see those gains reverse themselves as the year went on.”
“We saw many glide path clients that measure funded status daily execute de-risking triggers in the first quarter” said Richard McEvoy, a Partner in Mercer’s Investment business. “These nimble changes to lower risk positions highlight the benefit of having a pre-agreed plan with a supporting execution process in place.”
Mercer estimates the aggregate funded status position of plans operated by S&P 1500 companies on a monthly basis. Figure 1 shows the estimated aggregate surplus/ (deficit) position and the funded status of all plans operated by companies in the S&P 1500. The estimates are based on each company’s year end statement and by projections to March 31, 2013 in line with financial indices. This includes US domestic qualified and non-qualified plans and all non-domestic plans. 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 March 31, 2013, changes to the S&P 1500 constituents and newly released financial disclosures, the estimated aggregate assets were $1.68 trillion, compared with the estimated aggregate liabilities of $2.05 trillion.
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