Mercer:  S&P 1500 Aggregate Funding Remains Level

The S&P 1500-sponsored pension plan companies’ estimated aggregate funding for May remained level at 83% funded, according to global consulting leader Mercer. To date, aggregate levels have remained level every month in 2017, with the exception of March, where funding increased by 1%.

As of May 31, the estimated $391 billion aggregate deficit represents a decrease of $1 billion compared to April’s deficit, which is down $17 billion from the $408 billion measured at the end of 2016.

Jim Ritchie, a partner in Mercer’s Wealth business, noted that interest rates were higher in the post-election season, but indicated that the drop-off coincides with the changing of the political guard in January, bringing interest rates back down to pre-election levels.

“While interest rates are almost back down to pre-election levels, those plan sponsors who follow a glidepath investment strategy were more likely to take advantage of higher interest rates after the election than those plan sponsors that use more traditional investment strategies,” Ritchie said in a Mercer press release. “Interest rates initially spiked about 50 basis points after the election and have slowly declined since the beginning of the year. Plan sponsors using a glidepath strategy likely bought long-term bonds at cheaper prices last November and are reaping the rewards of declining interest rates, while also improving their risk profile.”

May also presented 1.2% and 3.1% gains for the S&P 500 and MSCI EAFE indexes, respectively. The typical discount rates for the pension plans measured by the Mercer Yield Curve decreased by 12 basis points to 3.82%.