The financial health of corporate America’s largest pension plans improved significantly last year, improving to levels not seen since the start of the financial crisis, according to an analysis by Towers Watson.
Rising interest rates lowered liabilities and moderate investment returns fueled the improvement.
The pension deficit for the 100 largest pension plan sponsors among publicly traded companies fell 57 percent in 2013 from $295.5 billion at the end of 2012 to $125.9 billion at the end of 2013.
The overall average funded status jumped 13 percentage points, from 78 percent at the end of 2012 to 91 percent at the end of 2013, which is the best funding level since the end of 2007, when the average stood at 103 percent funded.
The number of plan sponsors with fully funded plans jumped from five in 2012 to 22 at the end of 2013. In 2007, half of the 100 plans were fully funded.
Companies contributed relatively large amounts to their plans during 2013, with sponsors’ median contribution being 60 percent more than the value of benefits accruing during the year. However, the contribution levels were much lower than in prior years. For 2013, plan sponsors contributed $27.8 billion, down from $45.2 billion in 2012. That’s the smallest contribution since 2008, when companies added $16.8 billion to their plans.
After many years of making large contributions, some sponsors took contribution holidays or decided to contribute significantly less in 2013. Six of the 10 largest cash contributors in 2012 pumped $11.3 billion into their plans, compared with $0.8 billion in 2013.
“It will be interesting to see how the improved funding levels, if sustained, and overall financial health of pension plans will affect plan sponsors’ pension de-risking efforts in 2014,” said Alan Glickstein, senior retirement consultant at Towers Watson. “The improved funded position, combined with recent increases in Pension Benefit Guaranty Corporation premiums and a newly released Society of Actuaries mortality study, will make de-risking actions very attractive in 2014.”
Towers Watson is a global professional services company that helps organizations improve performance through effective people, risk and financial management.