ARLINGTON, VA, January 4, 2021 — The funded status of the nation’s largest corporate pension plans started and finished 2020 at the same level as declining interest rates caused pension obligations to grow, offsetting gains from investments in equities and bonds. This is according to an analysis by Willis Towers Watson (NASDAQ: WLTW), a leading global advisory, broking and solutions company.
Willis Towers Watson examined pension plan data for 366 Fortune 1000 companies that sponsor U.S. defined benefit pension plans and have a December fiscal-year-end date. Results indicate that the aggregate pension funded status is estimated to be 87% at the end of 2020, unchanged from 87% at the end of 2019. The analysis also found the pension deficit is projected to be $233 billion at the end of 2020, slightly higher than the $230 billion deficit at the end of 2019. Pension obligations increased 5% from $1.75 trillion in 2019 to an estimated $1.83 trillion in 2020.
Fortune 1000 aggregate pension plan funding levels
“While funded status rebounded from a disastrous eight-percentage-point drop in the first quarter, plan sponsors ended 2020 frustrated by the lack of progress in shoring up their plans,” said Jeff Brown, managing director, Retirement, Willis Towers Watson. “Continued declines in interest rates have significantly increased liabilities, leaving plans’ funded status levels stuck in neutral for the past three years despite stellar investment performance and significant contributions.”
According to the analysis, pension plan assets increased in 2020 from $1.52 trillion at the end of 2019 to an estimated $1.60 trillion at the end of 2020. Overall investment returns are estimated to have averaged 12.9% in 2020, although returns varied significantly by asset class. Domestic large capitalization equities grew 18%, while domestic small/mid-capitalization equities realized gains of 20%. Aggregate bonds recognized gains of 8%, while long corporate and long government bonds, typically used in liability-driven investing strategies, realized gains of 13% and 18%, respectively.
About the analysis
Willis Towers Watson analyzed 366 Fortune 1000 companies with December fiscal-year-end dates for which complete data were available. The 2020 figures are estimates of U.S. plan assets and liabilities. The earlier figures are actual. Actual year-end 2020 results will be publicly available in a few months.