Falling interest rates caused pension liabilities to outpace growth in April.
According to Mercer, the aggregate pension deficit for pension plans sponsored by the S&P 1500 companies grew by $47 billion in April to $419 billion. The funded ratio fell from 82 percent to 80 percent, which is still an improvement over the estimated 74 percent at the end of December 2012.
Despite continued strengthening in equity markets during the month of April, high quality corporate bond rates fell about 21 basis points to 3.65 percent, driving the estimated liabilities up almost 4 percent.
Plan sponsors continue to move toward risk management strategies to help reduce the volatility of their pension plan’s funded status. In 2013, they continue to explore various risk management strategies ranging from glidepath strategies to cashouts and annuity purchases for former employees.
Mercer estimates the aggregate funded status position of plans operated by S&P 1500 companies on a monthly basis. The estimates are based on each company’s year-end statement and by projections to April 30, 2013, in line with financial indices. This includes U.S. 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 as of Dec. 31, 2012, was $1.59 trillion, compared with estimated aggregate liabilities of $2.14 trillion, according to Mercer. Allowing for changes in financial markets through April 30, 2013, changes to the S&P 1500 constituents and newly released financial disclosures, the estimated aggregate assets were $1.71 trillion, compared with the estimated aggregate liabilities of $2.13 trillion.
Mercer is a global consulting firm focusing on talent, health, retirement and investments.