Despite strong equity markets, financial health of largest US corporate pension plans showed modest improvement in 2024

Rhea-AI Summary

WTW's analysis of 361 Fortune 1000 companies' defined benefit pension plans shows only modest improvement in funded status for 2024, reaching 100% from 98% in 2023. Despite strong U.S. equity market performance and rising interest rates, pension plan assets declined by 8% to $1.12 trillion, with average investment returns of 3%.

Pension obligations decreased from $1.25 trillion to $1.12 trillion due to higher interest rates and pension risk transfer activity. While domestic large-cap equities increased by 25% and small/mid-cap equities rose by 12%, long corporate and government bonds saw losses of -2% and -6% respectively.

The moderate improvement in funded status reflects a shift in pension plan investment strategy, with assets now less concentrated in equities and more focused on bonds for liability-hedging, providing funded status stability.

Positive

• Pension funded status improved to 100% from 98% in 2023
• Pension obligations decreased from $1.25T to $1.12T
• Domestic large-cap equities increased by 25%
• Small/mid-cap equities rose by 12%

Negative

• Pension plan assets declined by 8% in 2024
• Overall investment returns averaged only 3% despite strong market performance
• Long corporate bonds declined by 2%
• Long government bonds declined by 6%
• Cash contributions were lower than historical years

Insights

Pension Fund Analyst

<p>The <b>100%</b> funded status achieved by Fortune 1000 corporate pension plans marks a critical milestone, yet reveals a complex narrative beneath the surface. Despite the S&P 500's remarkable <percent>25%</percent> surge, pension assets actually declined by <percent>8%</percent> to <money>$1.12 trillion</money>, highlighting the industry's strategic shift toward liability-hedging.</p><p>The modest <percent>3%</percent> average investment return, despite strong equity markets, reflects pension funds' deliberate de-risking through increased bond allocations. This conservative approach, while sacrificing potential upside, has successfully delivered the stability that plan sponsors sought. The <percent>2%</percent> improvement in funded status from 2023 demonstrates the effectiveness of this risk-management strategy in a volatile market environment.</p>

Investment Strategist

<p>The divergence between asset performance and funded status reveals a fundamental shift in pension investment strategy. Traditional equity-heavy portfolios have given way to liability-matching approaches, with bonds becoming increasingly prominent despite their negative returns (-2% for long corporate bonds, -6% for long government bonds). This transformation represents a mature phase in pension fund management where stability trumps growth.</p><p>The continued trend of pension risk transfers, combined with reduced cash contributions, suggests that companies are actively managing their pension exposure rather than seeking to maximize returns. This strategic pivot indicates a broader movement toward pension de-risking that will likely persist through 2025, particularly among well-funded plans looking to lock in their favorable status.</p>

Funded status of largest plans edged up to 100%, WTW analysis finds

NEW YORK, Jan. 02, 2025 (GLOBE NEWSWIRE) -- Despite strong U.S. equity market gains and rising long-term interest rates, the funded status of the nation’s largest corporate defined benefit (DB) pension plans improved only modestly in 2024, according to an analysis by WTW (NASDAQ: WTW), a leading global advisory, broking and solutions company.

WTW examined pension plan data for 361 Fortune 1000 companies that sponsor U.S. DB pension plans and have a December fiscal year-end date. The aggregate pension funded status of these plans at the end of 2024 is estimated to be 100%, just two percentage points higher than 98% at the end of 2023. Pension obligations declined from $1.25 trillion at the end of 2023 to an estimated $1.12 trillion at the end of 2024 due to higher interest rates and pension risk transfer activity.

Fortune 1000 aggregate pension plan funding levels
Year	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023	2024*
Aggregate level	107%	77%	81%	84%	78%	77%	89%	81%	81%	81%	85%	86%	87%	88%	95%	98%	98%	100%
*Estimated

“Strong gains in the stock market and rising interest rates would traditionally have helped to strengthen the overall financial health of corporate pension plans,” said Joseph Gamzon, managing director, Retirement, WTW. “However, pension plan assets are less concentrated on equity investments today, as they hold more bonds to support liability-hedging strategies to provide funded status stability. As a result, many plan sponsors were able to achieve their goals of funded status stability while also seeing moderate increases in pension plan funding during 2024.”

According to the analysis, pension plan assets declined by 8% in 2024, finishing the year at $1.12 trillion. Overall investment returns are estimated to have averaged 3% in 2024, although returns varied significantly by asset class. Domestic large capitalization equities increased by 25%, while domestic small/mid-capitalization equities rose by 12%. Long corporate and long government bonds, typically used in liability-driven investing strategies, realized losses of –2% and –6%, respectively. While overall investment returns were slightly positive, the decline in assets year over year resulted from another active year in pension risk transfers and cash contributions that were lower than in historical years.

“As we move into 2025, sponsors whose plans aren’t fully funded will want to keep an eye out for opportunities to manage costs and cash contributions, including investment strategy and de-risking initiatives. For those with well-funded plans, sponsors will want to think about how best to protect this asset and best utilize the surplus for employee benefits in the coming year,” said Fred Lamm, managing director, Retirement, WTW.

About the analysis

WTW analyzed 361 Fortune 1000 companies with December fiscal year-end dates for which complete data were available. The 2024 figures are estimates of U.S. plan assets and liabilities. The earlier figures are actual. Actual year-end 2024 results will be publicly available in a few months.

About WTW

At WTW (NASDAQ: WTW), we provide data-driven, insight-led solutions in the areas of people, risk and capital. Leveraging the global view and local expertise of our colleagues serving 140 countries and markets, we help organizations sharpen their strategy, enhance organizational resilience, motivate their workforce and maximize performance.

Working shoulder to shoulder with our clients, we uncover opportunities for sustainable success—and provide perspective that moves you. Learn more at wtwco.com.

FAQ

What was the funded status of Fortune 1000 pension plans in 2024 according to WTW?

According to WTW's analysis, the aggregate pension funded status reached 100% in 2024, up from 98% in 2023.

How did pension plan assets perform for Fortune 1000 companies in 2024?

Pension plan assets declined by 8% in 2024, finishing at $1.12 trillion, with average investment returns of 3%.

What were the returns on domestic large-cap equities in pension plans analyzed by WTW?

Domestic large capitalization equities increased by 25% in 2024.

How did pension obligations change in 2024 for Fortune 1000 companies?

Pension obligations declined from $1.25 trillion to $1.12 trillion due to higher interest rates and pension risk transfer activity.

What was the performance of bonds in pension portfolios according to WTW's analysis?

Long corporate bonds realized losses of 2% while long government bonds declined by 6% in 2024.