The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies remained at 85% as of the end of July 2014. The drop in equity markets, accompanied by slight increases in interest rates used to calculate corporate pension plan liabilities, held funded status constant compared to the prior month.
The collective estimated deficit of $340 billion as of July 31, 2014, is up $10 billion from the estimated deficit of $330 billion as of June 30, 2014, and up $103 billion from the beginning of the year according to Mercer.
US equity markets declined about -1.5% during July based on the S&P 500 index. Typical discount rates for pension plans as measured by the Mercer Yield Curve, increased by 3 basis points to 4.10%, driving liabilities slightly downward.
“The funded status of pension plans sponsored by S&P 1500 companies has remained relatively stable over the last five months. Modest gains in the equity markets have been offset by a gradual decrease in discount rates,” said Jim Ritchie, a principal in Mercer’s retirement practice. “However, two recent developments may have a material impact on the funded status of pension plans later this year and into 2015. The recent highway bill, which was passed by both houses of congress and is waiting to be signed by President Obama, will lower minimum funding requirements for plan sponsors retroactive to 2013. Also, many plan sponsors are settling their liabilities with former employees by offering them lump sum cashouts. It will be interesting to see the extent to which these two developments impact funding levels over the remainder of 2014 and into next year.”
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