Established pension plans aren’t dying – they’re thriving, one study says
Alessandra Malito - Monday, JAN 3,2022
Corporate pension plans are not as common as they were decades ago, but some of the largest ones that still exist “improved significantly” in 2021, according to a new analysis.
Investment returns and rising interest rates drove funding status for the largest corporate defined-benefit pension plans to their highest levels since before the financial crisis in 2008, consulting firm Willis Towers Watson found. The researchers analyzed 361 of the Fortune 1000 companies. The Fortune 1000 list includes the U.S. companies with the highest revenue that year.
Pension plan assets equaled $1.67 trillion at the end of 2021, with an average 8.9% investment return, according to the analysis. The aggregate funding status for these companies’ pension plans was 96%, up 8 percentage points in 2021, and up from 77% in 2008. In 2007, the aggregate funding level was 107% – the last year these plans had been fully funded. Ideally, plans would always be fully funded.
“Since 2008, many sponsors have better positioned their plans relative to market risk, primarily through changes in investment allocation and settlement activity,” Joseph Gamzon, managing director of retirement at Willis Towers Watson, said in a statement.
See: Why are pension funds investing in hedge funds?
The funding deficit also diminished last year, Willis Towers Watson found. The deficit is now expected to have been $63 billion by the end of 2021, compared to $232 billion at the end of 2020.
Public pensions are also doing much better in recent years, another study found. The estimated aggregate level of funding for public pensions was 74.7% in 2021, up from 72.8% in 2020, according to the Center for Retirement Research at Boston College.
Lack of funding in a pension plan can spell trouble for workers, many of whom expect to rely on this money in their old age. There are safeguards to prevent catastrophes if a company can’t continue to support the retirement plan, however. When a corporation can no longer foot the bill for pensions, the Pension Benefit Guaranty Corporation can fund a portion of the benefit promised to workers.
Alessandra Malito - Monday, JAN 3,2022
Corporate pension plans are not as common as they were decades ago, but some of the largest ones that still exist “improved significantly” in 2021, according to a new analysis.
Investment returns and rising interest rates drove funding status for the largest corporate defined-benefit pension plans to their highest levels since before the financial crisis in 2008, consulting firm Willis Towers Watson found. The researchers analyzed 361 of the Fortune 1000 companies. The Fortune 1000 list includes the U.S. companies with the highest revenue that year.
Pension plan assets equaled $1.67 trillion at the end of 2021, with an average 8.9% investment return, according to the analysis. The aggregate funding status for these companies’ pension plans was 96%, up 8 percentage points in 2021, and up from 77% in 2008. In 2007, the aggregate funding level was 107% – the last year these plans had been fully funded. Ideally, plans would always be fully funded.
“Since 2008, many sponsors have better positioned their plans relative to market risk, primarily through changes in investment allocation and settlement activity,” Joseph Gamzon, managing director of retirement at Willis Towers Watson, said in a statement.
See: Why are pension funds investing in hedge funds?
The funding deficit also diminished last year, Willis Towers Watson found. The deficit is now expected to have been $63 billion by the end of 2021, compared to $232 billion at the end of 2020.
Public pensions are also doing much better in recent years, another study found. The estimated aggregate level of funding for public pensions was 74.7% in 2021, up from 72.8% in 2020, according to the Center for Retirement Research at Boston College.
Lack of funding in a pension plan can spell trouble for workers, many of whom expect to rely on this money in their old age. There are safeguards to prevent catastrophes if a company can’t continue to support the retirement plan, however. When a corporation can no longer foot the bill for pensions, the Pension Benefit Guaranty Corporation can fund a portion of the benefit promised to workers.
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