The heyday of U.S. corporate pension plan funding ended in 2007, when the aggregate level of funding was 106%, according to an analysis by Willis Towers Watson, a global advisory company.
And though corporate funding of pensions is much better than public employee pension funding, the 2018 amount dropped slightly to 84% from 85% in 2017.
“Pension plans had been on track for another year of improved funding through the third quarter of 2018 as a result of higher interest rates, relatively stable equity markets and solid contributions,” said Jennifer DeMeo, senior consultant at Willis Towers Watson, in a statement. “However, the steep declines in the equities markets during the fourth quarter, particularly in December, negated what had been a very positive year.”
The analysis of 389 Fortune 1000 companies that sponsor U.S. defined benefit pension plans and have a December fiscal-year-end date found a projected deficit of $255 billion at year end, slightly less than the $260 billion deficit in 2017.
Other findings:
- Pension plan assets fell to an estimated $1.33 trillion at the end of 2018 from $1.48 trillion at the end of 2017. Total pension obligations declined to an estimated $1.59 trillion in 2018 from $1.74 trillion in 2017.
- Overall investment returns were estimated to average a negative 4.7%, although returns varied by asset class. Domestic large-cap equities lost 4%, while small/mid-caps lost 10% on average. Long corporate bonds lost 7%, while long government bonds lost 2%, according to the analysis.
- Company contributions were $47 billion in 2018. Willis Towers Watson stated that many plan sponsors took advantage of the larger tax deduction due to the new tax law.
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Ginger Szala
Ginger Szala is executive managing editor of Investment Advisor magazine. She covered the financial business and alternatives industry for 30 years while editor of Futures Magazine Group. MSJ Northwestern, BA University of Wisconsin-Madison. She is based in Chicago. Go Blackhawks!
