Financial health of largest U.S. corporate pension plans surges to highest level since financial crisis

Rhea-AI Summary

Willis Towers Watson reports a significant improvement in the funded status of the largest corporate defined benefit pension plans in the U.S., reaching 96% at the end of 2021, a sharp rise from 88% in 2020. This marks the highest level since 2007. The projected funding deficit decreased to $63 billion from $232 billion in 2020, while pension obligations fell 8% to approximately $1.74 trillion. Average investment returns for 2021 stood at 8.9%, led by a 29% growth in domestic large-cap equities.

Positive

• Funded status increased to 96%, up from 88% in 2020.
• Projected funding deficit reduced to $63 billion from $232 billion.
• Pension obligations decreased by 8% to approximately $1.74 trillion.
• Average investment returns for 2021 estimated at 8.9%, with domestic large-cap equities rising by 29%.

Negative

• None.

Funded status jumped to 96%, up 8 percentage points during 2021, Willis Towers Watson analysis finds

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.

Media contact

Ed Emerman: +1 609 240 2766
eemerman@eaglepr.com