S&P 1500 pension plan funding levels rise rapidly
03 July 2013 New York
Image: Shutterstock
According to Mercer, funding levels of pension plans sponsored by S&P 1500 companies have risen to their highest point since 2011, with the aggregate deficit decreasing by $47 billion during the month of June, resulting in a $222 billion deficit as of 30 June 2013.
The funded ration (assets divided by liabilities) increased from 86 percent to 88 percent during June, up 14 percent since the end of 2012 and reached their highest levels since October 2008.
The continued rise in interest rates, following Federal Reserve chairman Ben Bernanke’s comments on the potential phase out of quantitative easing, drove down pension liabilities which are discounted using high quality corporate bond rates.
Discount rates for a typical pension plan rose 33 to 42 basis points during June, after having already risen 46 basis points during May. However equity markets stumbled slightly during the month with the S&P 500 index losing 1.5 percent.
According to Mercer analysis, an estimated 15 percent of plan sponsors had assets in excess of their pension obligations as of 30 June 2013, compared to only 4 percent at 31 December 2012.
Richard McEvoy, leader of Mercer’s financial strategy group, said: “All of this serves as a reminder of the volatility that pension plans are exposed to and how quickly things can change—a 14 percent increase in the funded ratio over just six months.”
“Rising rates have helped reduce funding liabilities and therefore we have seen funded status improve. We could easily see a large increase in fully funded plans if rates were to increase another 50 basis points from current levels.”
The funded ration (assets divided by liabilities) increased from 86 percent to 88 percent during June, up 14 percent since the end of 2012 and reached their highest levels since October 2008.
The continued rise in interest rates, following Federal Reserve chairman Ben Bernanke’s comments on the potential phase out of quantitative easing, drove down pension liabilities which are discounted using high quality corporate bond rates.
Discount rates for a typical pension plan rose 33 to 42 basis points during June, after having already risen 46 basis points during May. However equity markets stumbled slightly during the month with the S&P 500 index losing 1.5 percent.
According to Mercer analysis, an estimated 15 percent of plan sponsors had assets in excess of their pension obligations as of 30 June 2013, compared to only 4 percent at 31 December 2012.
Richard McEvoy, leader of Mercer’s financial strategy group, said: “All of this serves as a reminder of the volatility that pension plans are exposed to and how quickly things can change—a 14 percent increase in the funded ratio over just six months.”
“Rising rates have helped reduce funding liabilities and therefore we have seen funded status improve. We could easily see a large increase in fully funded plans if rates were to increase another 50 basis points from current levels.”
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