Robust investment market returns and some employers putting more than expected into their plans, offset by falling interest rates, produced a moderate gain in the funded status of the nation’s largest pension plans in 2017.
The funded status of plans broke a bit of stagnation by growing to 83% last year, compared with 81% at the end of 2016, 2015 and 2014, according to research by Willis Towers Watson, which looked at pension plan data for the 389 Fortune 1000 companies than have significant defined benefit plans.
“Strong stock performance and increased discretionary employer contributions more than offset falling interest rates” to allow the growth, Matthew Siegel, a senior consultant at Willis Towers Watson, told FierceCEO. “This was a nice uptick in the funded status. It’s good news for participants in the plans.”
The analysis also found that the pension deficit is projected to have decreased to $292 billion at the end of 2017, compared with a $317 billion deficit at the end of 2016.
Pension plan assets increased from $1.33 trillion at the end of 2016 to an estimated $1.43 trillion at the end of 2017, according to the research.
Overall investment returns are estimated to have averaged 13% in 2017, although returns varied significantly by asset class. Domestic large-capitalization equities returned 22%, while domestic small- to mid-capitalization equities earned 17%. Aggregate bonds provided a 4% return; long corporate and long government bonds, typically used in liability-driven investing strategies, earned 12% and 9%, respectively.
The Willis Towers Watson analysis estimates that the 389 companies contributed $51 billion to their pension plans in 2017, nearly double the amount needed to cover benefits accruing during the year. These contributions were higher than the $43 billion employers contributed to their plans in 2016.
Total pension obligations moved from $1.65 trillion to an estimated $1.72 trillion, with the biggest changes being the increase for lower discount rates largely offsetting the decrease for benefits paid.