Discount Rate Decreases Slow S&P Pension Improvements in May

A good showing from equities drove a small increase for S&P-sponsored pension plans despite a decrease in discount rates.

In May, S&P 1500 pension plans went up 1% from April as a result of stocks, to 89%, shaving $9 billion off the aggregate pension debt, down to $245 billion from April’s $254 billion, reports consulting firm Mercer.

The S&P 500 and MSCI EAFE indexes, however, experienced both highs and lows during the month. The S&P 500 increased by 2.2% from April while the MSCI EAFE fell by 2.8%.

“The pattern of improvement paused last month owing to a dip in discount rates, but aggregate funded status remains near a four-year high as the long bull market continues to persist,” said Matt McDaniel, a partner in Mercer’s US Wealth business.

“At the same time, plan sponsors are making discretionary contributions to their plans at a rapid clip to take advantage of tax reform and reduce PBGC premiums,” he said. “Funded status improvements driven by contributions are just as important as those caused by market movements, so those who put in cash should simultaneously be taking steps to manage risk.”

McDaniel attributed the slight S&P improvements to a “dip in discount rates,” which fell by three basis points to 4.06%. He noted that the average funded status for the S&P plans is still at a four-year high, and that “discretionary contributions” are quickly being made to take advantage of tax reform and reducing the PBGC premiums. 

Plans included in the S&P 1500 have a combined $1.95 trillion in assets under management as of May 31, but their combined liabilities now sit at $2.19 trillion.