ARLINGTON, VA, January 4, 2016 — The pension funded status of the nation’s largest corporate plan sponsors finished the year unchanged compared with the end of 2014, due in large part to a rise in interest rates mostly offset by a weak global stock market, according to a new analysis by global professional services company Towers Watson (NASDAQ: TW).

The Towers Watson analysis examined pension plan data for the 413 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 82% at the end of 2015, which is the same as it was at the end of 2014. The analysis also found that the pension deficit narrowed modestly by $28 billion to $291 billion at the end of 2015, compared to a $319 billion deficit at the end of 2014.

Fortune 1000 aggregate pension plan funding levels
Fortune 1000 aggregate pension plan funding levels

*Estimated

“An increase in corporate bond rates in advance of the Fed’s recent interest rate decision, combined with a flat global stock market, contributed to keeping pension plans in roughly the same financial shape as the previous year,” said Alan Glickstein, a senior retirement consultant at Towers Watson. “While pension obligations declined last year, so did assets. There was a lot of movement in the funded status throughout the year, but at the end of the year, essentially nothing changed overall. In contrast, the preceding two years were more volatile, one up and one down.”

According to the analysis, pension plan assets fell by an estimated 6% in 2015, from $1.41 trillion at the end of 2014 to an estimated $1.33 trillion at the end of last year. This reflects increases of roughly 2% due to investment returns and employer contributions offset by a decline of 8% from benefit payments and settlement transactions. The analysis also found that investment returns varied significantly by asset class. Domestic large-capitalization equities increased by 1%, while domestic small-/mid-capitalization equities declined by 3%. Aggregate bonds increased by less than 1%, and long credit bonds, typically used in liability-driven investing strategies, fell by 5%. With asset returns that were insufficient to keep up with the roughly 4% interest accruing on the obligations, the balance was made up by the decline in the obligation produced by the rising interest rates.

The Towers Watson analysis estimates that companies contributed $32 billion to their pension plans in 2015. These contributions were sufficient to cover new benefits earned by employees in 2015 but did not include a meaningful level of additional contributions to reduce the overall funded status deficit. Employer contributions have been declining steadily for the last several years partly due to legislated funding relief.

“Despite the lack of improvement in overall pension funded status, employers continued to de-risk their pension plans with lump sum buyouts and group annuity purchases. In fact, 2015 turned out to be the second-most-active recent year for annuity purchases, and we expect employers will continue to evaluate their retirement plan strategies this year,” said Matt Herrmann, a senior retirement consultant at Towers Watson.

“It’s been nearly a decade since employers as a group have been able to fully fund their pension plans. If the Fed’s decision to raise short-term interest rates last month is the first move in a pattern of rising rates, generally we could see improved pension funded status in the coming year, depending of course on how the stock market responds,” concluded Glickstein.

About the Analysis

Towers Watson analyzed 413 Fortune 1000 companies with December fiscal-year-end dates for which complete data were available. The 2015 figures are estimates of U.S. plan assets and liabilities. The earlier figures are actual. Actual year-end 2015 results will be publicly available in a few months.

About Towers Watson

Towers Watson (NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. With 16,000 associates around the world, the company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Learn more at towerswatson.com.