S&P 1500 Pension Funded Status Decreased by 2 Percent in June 

July 11, 2022 

United States, New York

The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies decreased by 2 percent in June 2022 to 100 percent as a result of a decrease in equity markets partially offset by an increase in discount rates. As of June 30, 2022, the estimated aggregate deficit of $4 billion USD increased by $47 billion USD as compared to a surplus of $43 billion USD measured at the end of May according to Mercer,¹ a global consulting leader and a business of Marsh McLennan (NYSE: MMC).

The S&P 500 index decreased 8.39 percent and the MSCI EAFE index decreased 9.40 percent in June. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased from 4.38 percent to 4.64 percent.

“Pension funded status for the S&P 1500 fell 2% after a rocky month for equities, and this month discount rate increases could not make up for those losses,” said Matt McDaniel, a Partner in Mercer’s Wealth Business. “Stocks saw significant sell-offs in June on continued inflation concerns and interest rate hikes from the Fed. The Fed’s current policy on interest rates appears more aggressive than earlier this year as they increased rates 75 basis points in June and indicated there will likely be more rate increases due to persistent inflation. Unfortunately for pension plans, which tend to have a long interest rate duration, long term rates have not increased as much as short term rates and in June we saw that impact as funded status dropped despite the sharp increase in short term interest rates. Plan sponsors are faced with unique market conditions this year and should review their investment policy to ensure they are well-positioned.”

Mercer estimates the aggregate funded status position of plans sponsored by S&P 1500 companies on a monthly basis. Figure 1 (below) shows the estimated aggregate surplus/(deficit) position and the funded status of all plans sponsored by companies in the S&P 1500. The estimates are based on each company’s latest available year-end statement^[2] and by projections to June 30, 2022 in line with financial indices. The estimates include U.S. domestic qualified and non-qualified plans, along with all non-domestic plans. The estimated aggregate value of pension plan assets of the S&P 1500 companies as of May 31, 2022 was $1.89 trillion USD, compared with estimated aggregate liabilities of $1.85 trillion USD. Allowing for changes in financial markets through June 30, 2022, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of June the estimated aggregate assets were $1.78 trillion USD, compared with the estimated aggregate liabilities of $1.79 trillion USD. Figure 2 shows the discount rates used in Mercer’s pension funding calculation.

Notes for editors

Information on the Mercer Yield Curve is available at http://www.mercer.com/pensiondiscount.

The Mercer US Pension Buyout Index may be accessed at http://www.mercer.us/our-thinking/mercer-us-pension-buyout-index.html.

Unless otherwise stated, the calculations are based on the Financial Accounting Standard (FAS) funding position and include analysis of the S&P 1500 companies.

Figure 1 : Estimated aggregate funded status of all plans sponsored by companies in the S&P 1500

Source: Mercer, June 2022

 

Figure 2: High Quality Corporate Bond Yield and S&P 500 data points

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_{¹Figures provided by Mercer Investments LLC.}

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