The pension funded status of the nation’s largest corporate sponsors increased sharply in 2013 due primarily to rising interest rates (which lowered liabilities) and a strong stock market, according to a new analysis by Towers Watson. In reviewing estimated year-end pension plan results, Towers Watson found that 2013 pension plan funding levels increased by 16 percentage points to reach their highest levels since 2007.
The Towers Watson analysis examined pension plan data for the 418 Fortune 1000 companies that sponsor U.S. tax-qualified defined benefit pension plans and have a December fiscal-year-end date. Results indicate that the aggregate pension funded status is estimated to be 93% at the end of 2013, a sharp jump from 77% at the end of 2012, but still well below the 106% funding at the end of 2007. Overall, pension plan funding improved by $285 billion last year, leaving a deficit of $99 billion at the end of 2013.
"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%," said Alan Glickstein, a senior retirement consultant at Towers Watson. "As a result of the funded status improvement, funding ratios are now at their highest levels since the financial crisis of 2008, but still well below 100%, 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."
The Towers Watson analysis estimates that companies contributed $48.8 billion to their pension plans in 2013 — 30% less than in 2012. Pension plan assets increased by an estimated 5% in 2013, from $1,288 billion at the end of 2012 to an estimated $1,409 billion at the end of last year.
"The improved funding environment will provide pension plan sponsors with some intriguing opportunities for 2014," said Dave Suchsland, a senior retirement consultant at Towers Watson. "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."
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