Rising Equity Markets Fail to Improve Funding Status of US Pension Plans

Mercer report indicates estimated aggregate deficit in April increased by $1 billion over March’s numbers.

Rising equity markets failed to boost the funding status of pension plans in the S&P 1500 Index, another sign that lump sum or buyouts of pension plans may strengthen in the months ahead, according to new data from Mercer.

In a release, Mercer said the funding levels of companies in the S&P 1500 Index remained the same—83%—in April 2017. As of April 30, 2017, Mercer said the estimated aggregate deficit of $392 billion represents an increase of $1 billion compared to the deficit measured at the end of March 2017. The aggregate deficit decreased $16 billion from the $408 billion measured at the end of 2016.

While the decrease in discount rates was offset by positive equity markets, funding levels failed to improve. These funding estimates are based on each company’s latest available year-end statement and by projections to April 30, 2017, that correspond to financial indices (the S&P 500 and the MSCI EAFE). The estimates include US domestic qualified and non-qualified plans, and all non-domestic plans.

“Falling interest rates have now given back most of the ground they gained following the election. Sponsors who were hoping that recent rate increases signaled a long-term trend should re-evaluate their plans for dealing with a prolonged low-rate environment. Recent rate movements could also make lump sum exercises look more attractive in 2017,” according to Matt McDaniel, a partner in Mercer’s Wealth Business.

The estimated aggregate value of pension plan assets of the S&P 1500 companies as of March 31, 2017, was $1.85 trillion USD, compared with estimated aggregate liabilities of $2.24 trillion USD. Allowing for changes in financial markets through April 30, 2017, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of April the estimated aggregate assets were $1.86 trillion USD, compared with the estimated aggregate liabilities of $2.25 trillion USD.

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