Strong stock market performance in 2019 didn’t translate to many corporate pension plans, according to Willis Towers Watson.
Despite strong investment gains, the financial health of the largest U.S. corporate pension plans showed little improvement in 2019 overall.
While the funded status of the nation’s largest pension plans edged up slightly in 2019, the company found historically low-interest rate levels mostly offset the strongest investment gains witnessed by DB plan sponsors since 2003.
The analysis also found employer contributions to pension plans plunged during the year.
In short, the aggregate pension funded status is estimated to be 87% at the end of 2019, compared with 86% at the end of 2018.
The analysis also found the pension deficit is projected to be $216 billion at the end of 2019, slightly lower than the $222 billion deficit at the end of 2018. Pension obligations increased 9% from $1.58 trillion in 2018 to an estimated $1.72 trillion in 2019.
“Significant gains experienced in both the stock and bond markets should have bolstered the financial health of corporate pension plans in 2019,” Joseph Gamzon, senior director, Retirement, Willis Towers Watson, said in a statement “However, interest rates were at historically low levels and experienced the largest one-year drop in two decades, resulting in a huge increase in plan obligations and little overall change in the plans’ funded status.”
Year of extremes
The companies analyzed contributed an estimated $26.3 billion to their plans in 2019—roughly half of what they contributed in 2018, when many plan sponsors took advantage of the higher tax deductions for pension contributions that existed before the Tax Cuts and Jobs Act of 2017. The larger deduction is no longer available to plan sponsors.
“2019 was a year of extremes, with historically low-interest rates and high investment returns,” added Jennifer Lewis, senior director, Retirement, Willis Towers Watson. “As we move into 2020, these conditions will cause employers to face growing pressure on their plans’ expected rate of return assumptions at the same time as they prepare for higher required cash contributions due to the upcoming expiration of pension funding relief.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
