The funded status of corporate defined benefit plans gauged by Mercer and BNY Mellon had little movement in November, as equities experienced small gains and discount rates have stabilized over the past few months.
The funded status of S&P 1500 companies' DB plans remained relatively flat at 72% in aggregate, as studied by Mercer, while funding for the typical corporate DB plan increased 0.8 percentage points to 74.4%, according to BNY Mellon.
According to BNY Mellon, assets increased 0.7% in November as U.S. equity markets returned 0.8% and international developed markets gained 2.4%, while liabilities decreased 0.3% as the discount rate increased four basis points to 3.76%. Mike Dunn, spokesman for BNY Mellon Asset Management, said the big takeaway is that discount rates are holding steady; the rate was 3.72% at the end of August.
Jonathan Barry, a partner in Mercer's retirement risk and finance consulting group, agreed that discount rates are stabilizing, but said “not a lot suggests (rates) will go up any time soon.” S&P 1500 companies face the largest end-of-year pension deficit ever despite the deficit decreasing $12 billion to $607 billion at the end of November. The previous highest year-end deficit was $484 billion at the end of 2011.
Assets for a typical pension plan have increased 10.8% this year, but liabilities have grown 12.1%, resulting in a 0.9 percentage-point decrease in funded status.
Mr. Barry said it is difficult to predict the size of pension contributions next year with the passage in July of the federal highway bill, known as MAP-21, offering temporary relief to plans. He added if companies have the cash, they should continue to make the full contribution to pension plans.
“MAP-21 has essentially taken interest rates out of the picture to some degree for the next couple years,” Mr. Barry said in a telephone interview. “I expect contributions to be lower than what they would have been in 2013” and lower than this year. Total contributions for S&P 1500 companies were about $70 billion this year.
The estimated aggregate value of pension plan assets of S&P 1500 companies as of Nov. 30 was $1.59 trillion, up from $1.57 trillion at the end of October. Estimated aggregate liabilities remained relatively flat at $2.19 trillion.