Merrill Lynch (NYSE: MER) today announced the development of a new U.S. Pension Index series designed to track the performance of U.S. pension liabilities. The indices are compiled based on sample projected pension plan liabilities, provided by Mercer*, for a “typical” young, mature, retired and average U.S. pension plan.
“The new U.S. Pension Indices are relevant benchmarks to measure pension plan investment performance,” said Phil Galdi, managing director of the firm’s global bond index & analytics group. “By aligning the asset index with the plan liabilities, the new indices solve a long-standing performance measurement problem facing most U.S. pensions.”
“An increasing number of sponsors are using liability driven investing strategies in their pension plans in order to manage the risk to the plan’s funded status,” said Asghar Alam, leader of Mercer’s retirement business in the Americas. “The asset allocation is designed to hedge the risks in the plan’s liabilities. These new indices can help plan sponsors review the performance of these strategies.”
Two types of U.S. Pension Indices are compiled: Pension Liability Indices and Tradeable Pension Indices. The Pension Liability Indices measure the percentage change in the net present value of the pension liabilities themselves. The series offers a choice of four discount curves for each of the typical pension plans: the Treasury curve, the swap curve, the AAA-A corporate curve, and a three-tier version of the AAA-A corporate curve that closely approximates the yield curve prescribed by the Pension Protection Act of 2006 (H.R. 4) for ERISA funding purposes. On the other hand, the Tradeable U.S. Pension Indices are designed to emulate actual transactions by measuring the total return performance of a basket of interest rate swaps that is structured to match the interest rate exposure of the pension liabilities. As such, they are an efficient tool to create hedging products in connection with managing changes in liability valuations.
The U.S. Pension Indices are compiled daily and are available, along with Merrill Lynch’s entire complement of over 3,000 bond indices, on a wide variety of distribution platforms, including the Merrill Lynch Global Index System which can be accessed on Bloomberg (IND
Table 1: Index reference list
Ticker Name
PUAX Tradeable Average US Pension Plan Index
PUAT Average US Pension Plan Treasury Discounted Index
PUAS Average US Pension Plan Swap Discounted Index
PUAC Average US Pension Plan AAA-A Corporate Discounted Index
PUAI Average US Pension Plan 3-Tier AAA-A Corporate Discounted Index
PUMX Tradeable Mature US Pension Plan Index
PUMT Mature US Pension Plan Treasury Discounted Index
PUMS Mature US Pension Plan Swap Discounted Index
PUMC Mature US Pension Plan AAA-A Corporate Discounted Index
PUMI Mature US Pension Plan 3-Tier AAA-A Corporate Discounted Index
PURX Tradeable Retired US Pension Plan Index
PURT Retired US Pension Plan Treasury Discounted Index
PURS Retired US Pension Plan Swap Discounted Index
PURC Retired US Pension Plan AAA-A Corporate Discounted Index
PURI Retired US Pension Plan 3-Tier AAA-A Corporate Discounted Index
PUYX Tradeable Young US Pension Plan Index
PUYT Young US Pension Plan Treasury Discounted Index
PUYS Young US Pension Plan Swap Discounted Index
PUYC Young US Pension Plan AAA-A Corporate Discounted Index
PUYI Young US Pension Plan 3-Tier AAA-A Corporate Discounted Index
Source: Merrill Lynch Global Bond Indices
Merrill Lynch’s Global Fixed Income Research team is part of Merrill Lynch Global Research, which has consistently achieved high rankings for its equity and fixed income research in numerous regional and global investor surveys, such as Institutional Investor, The Wall Street Journal, LatinFinance, Asiamoney, Euromoney, Bloomberg, Extel and Reuters.
Merrill Lynch is one of the world's leading wealth management, capital markets and advisory companies, with offices in 38 countries and territories and total client assets of approximately $1.7 trillion. As an investment bank, it is a leading global trader and underwriter of securities and derivatives across a broad range of asset classes and serves as a strategic advisor to corporations, governments, institutions and individuals worldwide. Merrill Lynch owns approximately half of BlackRock, one of the world’s largest publicly traded investment management companies with more than $1 trillion in assets under management. For more information on Merrill Lynch, please visit www.ml.com.
*Mercer is not affiliated with Merrill Lynch. Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercer’s investment services include investment consulting and multi-manager investment management. Mercer’s 17,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges. For more information, visit www.mercer.com.