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S&P 1500 Pension Funded Status Remained Level in January

At month’s end, the estimated aggregate deficit decreased to $400 billion from $408 billion as of the end of December 2016.

By Michael Katz

A new report from consultancy group Mercer pegs the aggregate funding rate of pension plans sponsored by S&P 1500 companies at 82% as of the end of January, which was little changed from the previous month.

At month’s end, the estimated aggregate deficit decreased to $400 billion from $408 billion as of the end of December 2016, according to the report. Standard discount rates for pension plans, as measured by the Mercer Yield Curve, remained flat in January at 4.04%, while the S&P 500 index rose 1.8%, and the MSCI EAFE index gained 2.9% during the month.

According to Mercer, the estimated aggregate value of pension plan assets of the S&P 1500 companies at the end of 2016 amounted to $1.81 trillion, compared with estimated aggregate liabilities of $2.21 trillion.

“January is another reminder that equity returns alone will likely not improve the funded status of pension plans,” said Jim Ritchie, a partner in Mercer’s retirement business. 

Many pension plans have large exposures to fixed-income assets with durations much shorter than the liabilities, said Ritchie.  As a result, they’re essentially betting that interest rates will rise over the long term.

“While most pundits believe interest rates will go up in the long run,” said Ritchie, “it is the short run that creates havoc on plan sponsors’ balance sheets and income statements.”