S&P 1500 Pensions’ Funded Status Rises 1% in September

Higher interest rates coupled with strong equity markets spurred a 1% month-over-month rise in the estimated aggregate funding status of pension plans sponsored by S&P 1500 companies in September. The combined funded status reached 83%, according to consulting firm Mercer.

“Interest rates finally moved in a positive direction while equities rose,” Matt McDaniel, a partner in Mercer’s Wealth business, said in a statement. “With both these forces working together, pension funded status is now the highest it has been since fall 2015.”

The S&P 500 and the MSCI EAFE indexes increased 1.93% and 2.23% respectively in September. Similarly, discount rates for pension plans as measured by Mercer also edged higher, by about seven basis points to 3.71%.

As of the end of September, the aggregate deficit of the plans decreased by nearly $40 billion. The month-end estimated aggregate value of pension assets and liabilities were $1.91 trillion and $2.30 trillion respectively, compared to the previous month with aggregate assets at $1.92 trillion and liabilities at $2.35 trillion.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

“Now, the ball is in plan sponsors’ court to make sure they preserve these gains,” said McDaniel.“Plans using a dynamic de-risking strategy should be frequently monitoring funded status to see if triggers are hit, and those considering risk transfer transactions may find that the time is right.”

Mercer’s approximations are based on each company’s latest available year-end statement, and projections to Sept. 30. The estimates include U.S. domestic qualified and non-qualified plans, as well as all non-domestic plans.

Tags: Mercer, Pension, S&P 1500, S&P 500

Concerns linger regarding the suitability of advice regarding defined benefit (DB) transfers, according to the UK’s Financial Conduct Authority (FCA). Less than half of all consumers transferring defined benefit pension plans received appropriate counsel per a new report from the FCA. The findings are based on the analysis of detailed information from 22 companies on their defined benefit transfer business over the past two years.

Since October 2015, the FCA reviewed 88 recommended DB transfers. Out of these, it found that: 47% were suitable, 17% were unsuitable, and 36% could not be determined if the recommendation was suitable or not. The FCA also considered the suitability of the recommended product and fund, and found that 35% were suitable, 24% were unsuitable, and 40% were unclear.

“Some of these firms made transfer recommendations without considering a receiving scheme or investments, or knowing the introducing adviser’s intentions for investment,” said the FCA. “This opened up the risk of consumers’ pension savings ending up in inappropriate or scam investments.”

A large number of companies do not advise on DB transfers, and often introduce clients to firms that specialize in pension transfer advice. The FCA found cases where there was a lack of information sharing between the introducing firm and the specialist transfer firm, which resulted in unsuitable advice where the specialist firm did not have enough information about the client’s objectives, needs, and personal circumstances.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

“We do not expect the specialist transfer firm to duplicate advice or make recommendations when an introducer is providing the regulated advice on investments,” said the FCA. “But we do expect them both to share information on the destination of the funds.”

In some cases, the adviser or transfer specialist made a recommendation without knowing where the transfer proceeds would be invested, and in other cases the specialist transfer firm did not make a recommendation for a receiving scheme or investments. In these instances the advisers had not asked what the intentions were of the introducing adviser, and could not ascertain where the proceeds would be invested.

“We could not see how the specialist transfer firm could produce accurate comparisons between the DB scheme and the receiving scheme,” said the FCA, “the client would not be able to make a fully informed decision without a comparison which took all of this into account.”

The FCA will continue to monitor the pension transfer market and, where appropriate, assess firms providing advice on DB transfers. It will also carry out a further phase of supervisory assessments in the current business year.

Tags: Defined benefit (db) pension plans, Financial Conduct Authority, Pension, Pension Transfer, UK