Deficits in pension-plan funding were reduced in November, partially because of the election win by Donald Trump, according to Mercer, a global business and wealth consultant.
The estimated aggregate funding deficit of pension plans sponsored by S&P 1500 companies was reduced by 20 percent during November. This brought the current pension fund status to 81 percent. The drop was attributed to an increase in discount rates that was mildly offset by mixed equity markets, Mercer says.
The estimated aggregate deficit of $414 billion represents a decrease of $116 billion compared with the end of October. However, the aggregate deficit is still up $10 billion from the $404 billion deficit at the end of 2015, according to Mercer.
“The surprising election win by Donald Trump appears to have started the long-awaited increase in long-term interest rates, which has greatly increased the funded status of pension plans,” says Jim Ritchie, partner, Mercer’s retirement business.
“Donald Trump’s promises of lower taxes and higher infrastructure spending are being credited for the recent increase in long-term rates, which are up approximately 40 basis points since the election,” he adds.
“Plan sponsors should take a serious look at their de-risking strategies with the focus on whether this rise in rates is temporary or a long-term trend. Either way, plan sponsors will want to have a solid strategy in place to take advantage of these higher rates,” Ritchie says.