Funding levels of pension plans sponsored by S&P 1500 companies were relatively flat during the month of August, resulting in a $213 billion deficit as August 31, 2013, according to Mercer. The funded ratio (assets divided by liabilities) remained at 89% during August, which is 15% higher than the end of 2012.
Equity markets saw losses during the month with the S&P 500 index falling 3.1% and the MSCI EAFE falling 1.6%. However 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 is up 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 Fed’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. 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 August 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 August 31, 2013, 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.
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