Funded status of U.S. corporate pension plans rebounded during second quarter

Rhea-AI Summary

The funded status of the largest corporate pension plans in the U.S. improved in Q2 2020, with an estimated funded status of 82%, up from 79% in Q1 but below 87% at the end of 2019. The pension deficit decreased to $325 billion from $365 billion, although it remains higher than the $222 billion deficit in 2019. Pension obligations rose to $1.84 trillion. Positive market returns offset some losses, while future challenges include potential revenue declines and increased pension costs due to the pandemic.

Positive

• Pension funded status increased to 82% as of June 30, 2020, up from 79% in Q1 2020.
• Pension deficit improved to $325 billion, down from $365 billion in Q1 2020.

Negative

• Pension obligations rose to $1.84 trillion, indicating growing liabilities.
• Concerns regarding potential revenue declines and increased pension costs due to the pandemic.

ARLINGTON, Va., July 06, 2020 (GLOBE NEWSWIRE) -- The funded status of the nation’s largest corporate pension plans rebounded during the second quarter of 2020, as improvements in the equity and bond markets offset liability increases attributable to declining interest rates, 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 366 Fortune 1000 companies that sponsor U.S. defined benefit pension plans. The analysis shows the aggregate pension funded status is estimated to be 82% as of June 30, 2020, up three percentage points from 79% at the end of the first quarter but below the 87% funded status at the end of 2019. The pension deficit is projected to be $325 billion as of June 30, 2020, an improvement from $365 billion as of March 31, 2020, but higher than the $222 billion deficit at the end of 2019. Pension obligations increased minimally from $1.75 trillion at the end of 2019 and $1.76 trillion as of March 31, 2020, to $1.84 trillion as of June 30, 2020.

“Improvements in the financial markets during the past three months helped to erase nearly 40% of the loss in funded status that corporate pension plans suffered in the first quarter,” said Joseph Gamzon, senior director, Retirement, Willis Towers Watson. “And, if not for a drop in corporate interest rates during the second quarter, plans would have recouped even more of the ground they lost.”

Pension plan assets increased during the second quarter from $1.40 trillion at the end of the first quarter to $1.52 trillion as of June 30, 2020. Overall investment returns are now slightly positive for the first half of 2020, but individual plan results will differ as returns have varied significantly by asset class.

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55%; width:55%; min-width:55%;">Investment class	15%; width:15%; min-width:15%;">Q1 2020	15%; width:15%; min-width:15%;">Q2 2020	15%; width:15%; min-width:15%;">YTD 2020
Domestic large-cap	–20%	21%	–3%
Domestic small/mid-cap	–30%	27%	–11%
Long corporate bond	–5%	11%	6%
Long government bond	21%	0%	21%

“As we move into the second half of 2020, many companies will be facing declining revenue from the impact of the pandemic and higher pension plan costs on the horizon for next year. To navigate this challenge, plan sponsors will need to keep a close eye on interest rates and financial markets while at the same time review and monitor their funding policy, investment allocation and overall risk management approach as they plan for 2021,” said Eric Grant, senior director, Retirement, Willis Towers Watson.

About the analysis

Willis Towers Watson analyzed 366 Fortune 1000 companies for which complete data were available. Second quarter 2020 figures are estimates of U.S. plan assets and liabilities.

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

FAQ

What is the current funded status of U.S. corporate pension plans according to WLTW?

The current funded status is estimated to be 82% as of June 30, 2020.

What was the pension deficit reported by WLTW for Q2 2020?

The pension deficit was reported at $325 billion for Q2 2020.

How have pension obligations changed as reported by WLTW?

Pension obligations rose to $1.84 trillion as of June 30, 2020.

What does WLTW predict for pension plans in the second half of 2020?

WLTW predicts challenges due to declining revenue and higher pension plan costs.

What is the significance of interest rates for pension plans according to WLTW?

Interest rates are crucial for plan sponsors to manage funding policies and investment allocations.