Mercer: Funded Status of S&P 1500 Pensions Hits 84% in 2017

Discount rates decreased by 3.56%.

S&P 1500-sponsored pension plans increased their estimated aggregate funded status to 84% from December 31, 2017, compared to the previous year, global consulting firm Mercer reports.

Mercer noted that 2017 saw funded status gains supported by equity and fixed-income markets increases “more than offset” decreases in interest rates used to calculate liabilities in corporate pension plans.

As of December 31, 2017, the estimated aggregate deficit is now $375 billion, a whopping $33 billion less than it was at the end of the previous year.

In addition, the S&P 500 total return index rose 21.83% over 2017, with the MSCI EAFE total return index jumping 25.6%. Typical discount rates for pension plans saw some reductions in 2017 as those measured by the Mercer Yield Curve shrank by 48 basis points to 3.56%.

“2017 was marked with strong equity performance—over 20%—however the typical plans’ funded status increased by only 2% given decreasing discount rates,” Scott Jarboe, a partner in Mercer’s Wealth business, said in a statement. “Looking forward to 2018, we think most plan sponsors will be taking a serious look at accelerating contributions given the recent passage of tax reform.  Plan sponsors have a limited window to take advantage of higher deductions and avoid the significant increase in the after-tax cost of pensions. Contributions will serve to boost funded status, and we believe they will fuel investment policy changes to de-risk financials and more risk transfer activity in an already vibrant market.”

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