The aggregate deficit in pension plans sponsored by S&P 1500 companies increased by $74 billion during July, from a deficit of approximately $231 billion as of June 30, 2011, to $305 billion as of July 31, according to new figures from Mercer [1]. This deficit corresponds to an aggregate funded ratio of 83% as of July 30, compared to a funded ratio of 86% at June 30, 2011 and 81% at December 31, 2010.
The decline in funded status was driven by a 2.0% drop in equities, partially offset by a fall in yields on high quality corporate bonds during the month. Discount rates for the typical US pension plan decreased approximately 30 basis points during the month. Mercer’s analysis indicates the S&P 1500 funded status peaked at 88% at the end of April, and has since seen a 5% decline.
“I think the market’s concern around the US debt ceiling debate really showed up in this month’s numbers,” said Jonathan Barry, a partner in Mercer’s Retirement Risk and Finance group. “The S&P 1500 declined by roughly 4% in the last week of the month, and high quality bond yields declined, as investors looked for safer investments due to the uncertainty. We saw pretty steady improvement in funded status through the first few months of 2011, but we have seen more volatility the past three months, which has wiped out much of the improvement we saw in funded status year to date.
“We continue to recommend that plan sponsors, especially those with closed or frozen plans look into frequent funded status monitoring, in order to capitalize on funded status improvements, and move to lower risk positions,” said Mr. Barry
Mercer estimates the aggregate combined funded status position of plans operated by S&P 1500 companies on a monthly basis. The estimated aggregate surplus/(deficit) position and the funded status of all plans operated by companies in the S&P 1500 is based on projections of their reported financial statements[2]adjusted from each company’s financial year end to June 30 in line with financial indices. This includes US domestic qualified and non-qualified plans and all non-domestic plans.
The estimated aggregate value of pension plan assets of the S&P 1500 companies at December 31, 2010, was $1.37 trillion, compared with estimated aggregate liabilities of $1.68 trillion. Allowing for changes in financial markets though the end of July 2011, changes to the S&P 1500 constituents and newly released financial disclosures, the estimated aggregate assets were $1.44 trillion, compared with the estimated aggregate liabilities of $1.75 trillion as of July 31, 2011.
|
