The nation’s largest corporate pension plans lost momentum in 2022, breaking its steady streak of rising funded status levels since 2016.
That’s according to Willis Towers Watson (WTW), who recently came out with its annual analysis of the funded status for some of the nation’s major corporate pension plans. Funded status ended at the same levels as it started in 2022 at 95%, thanks to weak investment returns that offset lower pension liabilities created by higher interest rates, said 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,” said Jason Wilhite, senior director, Retirement, at WTW. “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.
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.
WTW examined pension plan data for 356 Fortune 1000 companies that sponsor U.S. defined benefit (DB) pension plans and have a December fiscal year-end date.
A look at the funded status levels since 2008 are below.
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| 77% | 81% | 84% | 78% | 77% | 89% | 81% | 81% | 81% | 85% | 86% | 87% | 88% | 95% | 95% |
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