Funded status of largest U.S. corporate pension plans held steady in 2022

Rhea-AI Summary

WTW reports that the funded status of the largest corporate defined benefit pension plans in the U.S. ended 2022 at 95%, unchanged from the previous year. A WTW analysis of 356 Fortune 1000 companies found a funding deficit of $62 billion, reduced from $80 billion in 2021. This decline in pension obligations was attributed to a 26% decrease in liabilities due to rising interest rates, despite a 26% drop in pension assets, totaling $1.22 trillion. Investment returns averaged –19% in 2022, prompting caution for plan sponsors as they face potential cost increases moving into 2023.

Positive

• Funding deficit decreased from $80 billion in 2021 to $62 billion in 2022.
• Pension obligations dropped 26% from $1.73 trillion to an estimated $1.28 trillion due to rising interest rates.

Negative

• Pension plan assets declined 26%, finishing the year at $1.22 trillion.
• Overall investment returns averaged –19%, impacting asset values significantly.

Despite weak investment returns, rising interest rates kept year-end funded status at 95%, WTW analysis finds

ARLINGTON, Va., Jan. 03, 2023 (GLOBE NEWSWIRE) -- The funded status of the nation’s largest corporate defined benefit pension plans ended 2022 at the same level as it began the year, as weak investment returns offset lower pension liabilities created by higher interest rates, according to an analysis by WTW (NASDAQ: WTW), a leading global advisory, broking and solutions company.

WTW examined pension plan data for 356 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 at the end of 2022 is estimated to be 95%, the same level as at the end of 2021. The analysis also found the funding deficit is projected to be $62 billion at the end of 2022, down from $80 billion at the end of 2021. Pension obligations declined 26% from $1.73 trillion at the end of 2021 to an estimated $1.28 trillion at the end of 2022.

Fortune 1000 aggregate pension plan funding levels

Year	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022
Aggregate level	107%	77%	81%	84%	78%	77%	89%	81%	81%	81%	85%	86%	87%	88%	95%	95%*

*Estimated

“Corporate pension plans’ 10-year march toward full funding lost momentum in 2022,” said Jason Wilhite, senior director, Retirement, WTW. “Despite asset performance being down during 2022, the historic rise in interest rates also lowered pension liabilities, resulting in no change in funded status for U.S. corporate pension plans as a whole. And while funded status on companies’ balance sheets may be largely unchanged, some sponsors may be faced with higher pension costs heading into 2023 due to the interest rate environment.”

According to the analysis, pension plan assets declined 26% in 2022, finishing the year at $1.22 trillion. Overall investment returns are estimated to have averaged –19% in 2022, although returns varied significantly by asset class. Domestic large capitalization equities as well as domestic small/mid-capitalization equities both fell by –18%. Aggregate bonds recognized losses of –13%, while long corporate and long government bonds, typically used in liability-driven investing strategies, realized losses of –25% and –29%, respectively. The decline in assets year over year was also accelerated by another record year in pension risk transfers and cash contributions that were lower than in typical years.

“We believe plan sponsors should stay vigilant in 2023 as volatility and downside risk remain,” said Joanie Roberts, senior director, Retirement, WTW. “The decline in asset values during 2022 may have increased the risk of future pension contributions for many plan sponsors. With some economists forecasting a potential recession in 2023, sponsors will want to revisit how their strategy for managing pension risk needs to evolve.”

About the analysis

WTW analyzed 356 Fortune 1000 companies with December fiscal year-end dates for which complete data were available. The 2022 figures are estimates of U.S. plan assets and liabilities. The earlier figures are actual. Actual year-end 2022 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 is the funded status of WTW's pension plans at the end of 2022?

The funded status of WTW's pension plans ended 2022 at 95%, the same level as the previous year.

How much did the funding deficit of WTW pension plans decrease in 2022?

The funding deficit decreased from $80 billion in 2021 to $62 billion at the end of 2022.

What was the average investment return for WTW pension plans in 2022?

The average investment return for WTW pension plans in 2022 was –19%.

What factors contributed to the decline in pension obligations for WTW plans?

The decline in pension obligations was primarily due to a 26% reduction attributed to rising interest rates.

What should WTW plan sponsors be cautious about in 2023?

WTW plan sponsors should be cautious about potential increases in pension costs and the risk of future contributions due to asset value declines.