Administration November 3, 2015

Pension Funded Status Rises in October

Funding levels of S&P 500 pensions reversed course after three straight months of declines. 
Reported by

The estimated aggregate funding level of S&P 500 pensions increased by 4%, to reach 83% of liabilities by the end of October, according to Mercer’s monthly corporate pension funded status index.

After the month’s gain, the estimated aggregate deficit of $386 billion reflected a dip of $71 billion, compared with the previous month. Funded status is now up by $118 billion from the $504 billion deficit at the end of 2014, Mercer says. 

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The S&P 500 index gained 8.3% and the MSCI EAFE index gained 7.7% in October. Typical discount rates for pension plans as measured by the Mercer Yield Curve remained the same, at 4.14%.

“October was a welcome relief after three straight months of declines,” says Matt McDaniel, a partner in Mercer’s retirement unit. “Equity markets rallied, returning to positive territory year to date. Still, the outlook for pension plan sponsors is cloudy, with the new federal budget deal set to significantly increase PBGC premiums. Sponsors should look to take advantage of these gains and execute on strategies to avoid these increased costs.”

Administration November 3, 2015

Pension Funded Status Sees October Gain

The aggregate funded ratio for U.S. corporate pension plans rose by more than 3%.
Reported by

The aggregate funded ratio for U.S. corporate pension plans increased by 3.2% to 84.1% for October, according to Wilshire Consulting, the institutional investment advisory and outsourced-CIO business unit of Wilshire Associates Incorporated.

The rise in funding was the result of an increase in asset value and no change in liability value.

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“We estimate that overall the funded ratio for the plan sample increased by 3.2%, from 80.9% in September to 84.1% in October,” says Ned McGuire, vice president and member of the Pension Risk Solutions Group of Wilshire Consulting. “The increase in funding levels was driven by a 4% increase in asset value and no change in liability value. The asset result is due to positive returns for most asset classes.”  

The aggregate figures represent an estimate of the combined assets and liabilities of corporate pension plans sponsored by S&P 500 companies with a duration in-line with the Citi Group Pension Liability Index Intermediate. The Funded Ratio is based on the CPLI Intermediate liability, with service cost, benefit payments and contributions in line with Wilshire’s 2015 corporate funding study. The most current month end liability growth is estimated using the Barclays Long Aa+ U.S. Corporate Index. 

The assumed asset allocation is:

  • U.S. Equity – 32%;
  • Non-U.S. Equity – 21%;
  • Core Fixed Income – 18%;
  • Long Duration Fixed Income – 27%; and
  • Real Estate – 2%.

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