Pension Plan Funded Status on the Upswing

Thanks to higher interest rates and higher stock prices, plan funded status improved dramatically in 2013—although it's still below 100 percent.

In 2013, as rising stock prices increased asset values and rising interest rates lowered liabilities, the funded status improved substantially for pension plans from the nation’s largest companies. After analyzing the financials of the 418 Fortune 1000 companies that have a December fiscal year-end and sponsor a U.S. tax-qualified defined-benefit pension plan, Towers Watson estimates that the funded status of these plans, on average, was 93 percent at the end of last year. That’s up 16 percentage points from the 77 percent funding ratio a year earlier (see Figure 1, below).

As a result, plan sponsors’ contributions to their pensions fell last year. Towers Watson estimates that the companies in its analysis contributed $48.8 billion to their plans in 2013, which is 23 percent less than in 2012.

“The strong stock market and higher interest rates last year gave plan sponsors the one-two punch they needed to cut the funding deficit of their corporate pension plans by nearly 75 percent,” says Alan Glickstein, a senior retirement consultant with Towers Watson. “Funding ratios are now at their highest levels since the financial crisis of 2008, but still well below 100 percent, a level reached only three times since 2000. The improved funding environment, together with legislative funding stabilization enacted in 2012, gave plan sponsors some relief from record levels of contributions since the 2008 recession.”

Looking forward, Dave Suchsland, another Towers Watson senior retirement consultant, predicts: “The improved funding environment will provide pension plan sponsors with some intriguing opportunities for 2014. We expect the actions we’ve seen among companies to de-risk their pension plans over the past several years will accelerate as funding levels continue to improve, especially in light of increases in PBGC premiums and mortality tables, and projection scales with increased life expectancy.”

 010614-Towers Watson graph 

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