According to a study by Mercer, the estimated aggregate deficit of pension plans sponsored by S&P 1500 companies was $286 billion at the end of March, a $24 billion increase from $262 billion at the end of February. As a result, the estimated aggregate funding status fell 1% in March to 87%.
The decline in the funded ratio of these plans resulted from falling asset prices and a slight decline in the “average” discount rate by 5 basis points to 3.92%. This was the first decline for this cohort since August 2017, as both asset prices and discount rates have steadily risen. Also, according to the study, the estimated aggregate value of the pension plan assets as of the end of February was $1.97 trillion, compared with estimated aggregate liabilities of $2.23 trillion.
Until recently, markets have been relatively calm. For sponsors of DB plans, this is a very good time to take risk off the table before volatility returns. Funded ratios have been crippled by two major market events in the last 18 years. It makes no sense to continue to subject the entire asset base to the whims of the market when strategies exist to safeguard the funded status and contribution expense.