GlobeNewswire January 2, 2020
The
funded status of the nation’s largest corporate pension plans edged up slightly
in 2019 as historically low interest rate levels mostly offset the strongest
investments gains witnessed by plan sponsors since 2003, according to an
analysis by Willis Towers Watson.
The
analysis also found employer contributions to pension plans plunged in 2019.
Willis
Towers Watson examined pension plan data for 376 Fortune 1000
companies that sponsor U.S. defined benefit pension plans and have a December
fiscal-year-end date. Results indicate that the aggregate pension funded status
is estimated to be 87% at the end of 2019, compared with 86% at the end of
2018.
The
analysis also found the pension deficit is projected to be $216 billion at the
end of 2019, slightly lower than the $222 billion deficit at the end of 2018.
Pension obligations increased 9% from $1.58 trillion in 2018 to an estimated
$1.72 trillion in 2019.
Fortune 1000
aggregate pension plan funding levels
Year
|
2007
|
2008
|
2009
|
2010
|
2011
|
2012
|
2013
|
2014
|
2015
|
2016
|
2017
|
2018
|
2019*
|
Aggregate level
|
106%
|
77%
|
81%
|
84%
|
78%
|
77%
|
89%
|
81%
|
81%
|
81%
|
85%
|
86%
|
87%
|
*Estimated
“Significant
gains experienced in both the stock and bond markets should have bolstered the
financial health of corporate pension plans in 2019,” said Joseph Gamzon,
senior director, Retirement, Willis Towers Watson. “However, interest rates
were at historically low levels and experienced the largest one-year drop in
two decades, resulting in a huge increase in plan obligations and little
overall change in the plans’ funded status.”
According
to the analysis, pension plan assets increased in 2019 from $1.36 trillion at
the end of 2018 to an estimated $1.50 trillion at the end of 2019. Overall
investment returns are estimated to have averaged 19.8% in 2019, although
returns varied significantly by asset class. Domestic large capitalization
equities grew 32%, while domestic small/mid-capitalization equities realized
gains of 28%. Aggregate bonds recognized gains of 9%, while long corporate and
long government bonds, typically used in liability-driven investing strategies,
realized gains of 23% and 15%, respectively.
The
analysis estimates these companies contributed $26.3 billion to their plans in
2019 — roughly half of what they contributed in 2018, when many plan sponsors
took advantage of the higher tax deductions for pension contributions that
existed before the Tax Cuts and Jobs Act of 2017. The larger deduction is no
longer available to plan sponsors.
“2019
was a year of extremes, with historically low interest rates and high
investment returns,” said Jennifer Lewis, senior director, Retirement, Willis
Towers Watson. “As we move into 2020, these conditions will cause employers to
face growing pressure on their plans’ expected rate of return assumptions at
the same time as they prepare for higher required cash contributions due to the
upcoming expiration of pension funding relief. Sponsors will want to keep an
eye on interest rates as increases from their current low levels could create
opportunities to reevaluate their investment strategies and consider a range of
risk reduction options.”
About
the analysis
Willis
Towers Watson analyzed 376 Fortune 1000 companies with
December fiscal-year-end dates for which complete data were available. The 2019
figures are estimates of U.S. plan assets and liabilities. The earlier figures
are actual. Actual year-end 2019 results will be publicly available in a few
months.
About
Willis Towers Watson
Willis
Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and
solutions company that helps clients around the world turn risk into a path for
growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees
serving more than 140 countries and markets. We design and deliver solutions
that manage risk, optimize benefits, cultivate talent, and expand the power of
capital to protect and strengthen institutions and individuals. Our unique
perspective allows us to see the critical intersections between talent, assets
and ideas — the dynamic formula that drives business performance. Together, we
unlock potential. Learn more at willistowerswatson.com.
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