Financial health of largest U.S. corporate pension plans surges to highest level since financial crisis
ARLINGTON, Va., Jan. 03, 2022 (GLOBE NEWSWIRE) -- The financial health of the nation's largest corporate defined benefit pension plans improved significantly in 2021 as strong investment returns and rising interest rates help to drive their aggregate funded status to its best level since before the 2008 financial crisis, according to an analysis by Willis Towers Watson (NASDAQ:WLTW), a leading global advisory, broking and solutions company.
Willis Towers Watson examined pension plan data for 361 Fortune 1000 companies that sponsor U.S. defined benefit pension plans and have a December fiscal year-end date. The aggregate pension funded status of these plans is estimated to be 96% at the end of 2021, up sharply from 88% at the end of 2020. That is the highest funded status since 2007, the last year defined benefit plans of the Fortune 1000 were fully funded. The analysis also found the funding deficit is projected to be $63 billion at the end of 2021, significantly less than the $232 billion deficit at the end of 2020. Pension obligations decreased 8% from $1.89 trillion at the end of 2020 to an estimated $1.74 trillion at the end of 2021.
Fortune 1000 aggregate pension plan funding levels
| Year | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |
| Aggregate level | 107% | 77% | 81% | 84% | 78% | 77% | 89% | 81% | 81% | 81% | 85% | 86% | 87% | 88% | 96%* |
*Estimated
"Defined benefit plan sponsors made great headway in 2021 on their path toward full funding, something many plans haven't experienced since prior to the 2008 financial crisis," said Joseph Gamzon, managing director, Retirement, Willis Towers Watson. "And since 2008, many sponsors have better positioned their plans relative to market risk, primarily through changes in investment allocation and settlement activity."
According to the analysis, pension plan assets increased slightly (1%) in 2021 finishing the year at $1.67 trillion. Overall investment returns are estimated to have averaged 8.9% in 2021, although returns varied significantly by asset class. Domestic large capitalization equities grew 29%, while domestic small/mid-capitalization equities realized gains of 18%. Aggregate bonds recognized losses of –2%, while long corporate and long government bonds, typically used in liability-driven investing strategies, realized losses of –1% and –5%, respectively. The growth in assets year-over-year was limited by a record year in pension risk transfers and cash contributions that were lower than typical years.
"The improvement in funded status coupled with changes in the funding rules provide plan sponsors an opportunity to move their pension strategy forward in 2022," said Jennifer Lewis, senior director, Retirement, Willis Towers Watson. "Depending on the sponsor's objectives, that strategy may include executing more pension risk transfers, positioning the plan for the long term or a combination of both."
About the analysis
Willis Towers Watson analyzed 361 Fortune 1000 companies with December fiscal year-end dates for which complete data were available. The 2021 figures are estimates of U.S. plan assets and liabilities. The earlier figures are actual. Actual year-end 2021 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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