Rising equity markets helped boost the estimated aggregate funding level of pension plans sponsored by S&P 1500 companies 2% during July to reach 91% at the end of the month, according to consulting firm Mercer.
As of July 31, the estimated aggregate deficit of the plans decreased to $193 billion from $229 billion at the end of June. During that time, the S&P 500 index increased 3.6%, while the MSCI EAFE index gained 2.4%, and typical discount rates for pension plans, as measured by the Mercer Yield Curve, moved up 1 basis point to 4.15%.
“Interest rates held steady in July, letting equity markets do the work in running up gains,” which drove the funded status to a five-year high in July, said Matt McDaniel, a partner in Mercer’s wealth business, in a release. “Plan sponsors are now faced with a tough choice: do they continue to ride an equity bull market that is approaching 10 years long, or do they move to lock in gains through derisking?”
The aggregate value of pension plan assets of the S&P 1500 companies as of June 30 was $1.93 trillion, compared with estimated aggregate liabilities of $2.16 trillion. Allowing for changes in financial markets through July 31, changes to the S&P 1500 constituents, and newly released financial disclosures, the estimated aggregate assets at the end of July were $1.96 trillion, compared with the estimated aggregate liabilities of $2.15 trillion.
Mercer also reported that Treasury yields increased for all maturities while corporate bonds remained steady during July, which decreased the implied credit spread by 10 basis points. Mercer Yield Curve spot rates increased modestly across early maturities, which was partially offset by a small decrease for a majority of the longer maturities.
The Mercer Yield Curve is a spot yield curve intended to be used as an aid in selecting discount rates under various accounting standards for pension, retiree medical, or other post-retirement benefit plans.