For the third year in a row, aggregate funded status1 for defined benefit (DB) plans in the Willis Towers Watson Pension 100 (WTW Pension 100)2,3 showed little change, still hovering around 81% at year-end 2016. While the value of plan assets rose slightly during the year, liability growth kept pace.

This annual analysis is based on just-reported pension disclosures from Securities and Exchange Commission 10-K filings of 100 publicly traded U.S. sponsors of large pension plans whose fiscal years end in December.4 We examine reported funding results, the discount rates used to measure liabilities, target asset allocation policies over time, returns on investments and sponsor contributions for 2016. Where applicable, historical values in this analysis are shown for companies in the current WTW Pension 100 sample.

Among these WTW Pension 100 plans, the gap between pension liabilities and assets has grown substantially during the last 10 years. Between 2007 and 2012, funding dropped from an $81 billion surplus to a $296 billion deficit (Figure 1). The following year, rising interest rates lowered plan obligations — reversing a four-year trend — and assets grew, slicing the prior year’s deficit in half. By year-end 2014, however, falling interest rates combined with the widespread adoption of new mortality assumptions pushed aggregate pension deficits up to $248 billion; both asset and liability values peaked in 2014. During 2015, while interest rates ticked back up again, investment returns were poor, leaving plan funding at roughly the same level it had been in 2014.

By year-end 2016, investment returns were slightly above expectations and contributions were the highest in four years, but another interest rate decline pushed liabilities higher once again, leaving plan funding slightly lower than it had been the year before.

Figure 1. Aggregate funded status for WTW Pension 100 ($ billions), 2007 – 2016

Figure 1. Aggregate funded status for WTW Pension 100 ($ billions), 2007 – 2016
Click to enlarge

Source: Willis Towers Watson

Funded status holds steady for third year in a row

Among WTW Pension 100 companies, both assets and obligations grew by 2% during 2016.5 Pension obligations rose in three of the last five years, while assets grew in four years during the same period.

From 2015 to 2016, the overall funding deficit increased by roughly $6 billion — rising from $239 billion to $245 billion — an increase of roughly 2%. Since year-end 2014, the pension deficit has decreased by $3 billion.

For the third year running, average funded status for the WTW Pension 100 was 82.4% (Figure 2). Aggregate funded status was a slightly lower 80.8% for 2016, indicating that the largest plans were slightly less well funded than the others.

Figure 2. Aggregate and average funded status (%) for WTW Pension 100, 2007 – 2016

Figure 2. Aggregate and average funded status (%) for WTW Pension 100, 2007 – 2016

Source: Willis Towers Watson

Figure 3 depicts the distribution of funded status since 2007 and shows some major shifts during the 10-year analysis period, although changes were minimal from 2015 to 2016. Funded status was 80% or higher for 54 companies in 2016 versus 56 companies in 2015. The tails of the distributions increased during the year: One more sponsor reached 100% funded status, while funding levels dropped below 70% for four more companies.

Figure 3. Distribution of funded status for WTW Pension 100, 2007 – 2016
  2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
100% or more 50 4 6 7 6 5 19 6 6 7
90% to 99% 27 11 9 17 6 8 25 16 14 14
80% to 89% 16 18 33 38 29 26 37 34 36 33
70% to 79% 6 28 34 28 32 35 15 34 32 30
Less than 70% 1 39 18 10 27 26 4 10 12 16

Source: Willis Towers Watson

In contrast, at year-end 2013, funded status was 80% or higher in 81 companies (19 were fully funded). Prior to the financial crisis, funded status was 80% or higher for 93 of these same companies, and half of them had fully funded plans.

Figure 4 shows changes in funded status from 2015 to 2016. Funded status increased for 45 sponsors and declined for 55 sponsors. The increase was between 0.1 and 4.9 percentage points for 33 companies, and the decline was in the same range for 47 companies. Funded status increased by 10 percentage points or more in three companies, owing to relatively large employer contributions during 2016 (as explained later).

Figure 4. Changes in funded status for WTW Pension 100, 2015 – 2016
Change in funded status Number of companies Average change in funded status during the year
10.0% or more 3 11.8%
5.0% to 9.9% 9 6.4%
0.1% to 4.9% 33 1.9%
–0.1% to –4.9% 47 –2.0%
–5.0% to –9.9% 6 –6.4%
–10.0% or more 2 –11.3%

Source: Willis Towers Watson

Discount rates drop during 2016

Plan obligations increased in 2016, partly due to a decline in the interest rates used to measure pension liabilities. From 2008 through 2012, discount rates fell every year, resulting in an accumulated decline of 235 basis points, before finally rising in 2013 (Figure 5). Since 2012, rates have fluctuated, rising and falling in successive years. Thanks to a run-up in interest rates over the last months of 2016, the average discount rate drop was only 29 basis points by the end of the year. That late-year increase helped avert major declines in funded status.

Figure 5. Average year-end discount rate assumptions for WTW Pension 100, 2007 – 2016

Figure 5. Average year-end discount rate assumptions for WTW Pension 100, 2007 – 2016

Source: Willis Towers Watson

Figure 6 shows month-end corporate bond yields from Merrill Lynch’s 10+ and 15+ high-quality corporate bond indices. By August 2016, corporate bond yields were down 91 basis points from year-end 2015. Between November 1 and December 31, rates increased by an average of 31 basis points, which ramped down earlier PBO growth.

Figure 6. Merrill Lynch high-quality 10+ and 15+ corporate bond yields, December 2015 – December 2016

Figure 6. Merrill Lynch high-quality 10+ and 15+ corporate bond yields, December 2015 – December 2016

Source: Bloomberg

Shift to more conservative investments continues to slow

During the past decade, plan sponsors have, overall, been gradually reducing their investment risk by shifting from public equities to fixed-income and alternative investments (Figure 7).6 Since 2009, average allocations to public equities have fallen by roughly 13 percentage points, while allocations to fixed-income investments have risen by around 10 percentage points.

Figure 7. Average target asset allocation percentages for WTW Pension 100, 2009 – 2017
  Cash Public equity Debt Real estate Other
2009 0.3% 55.4% 33.7% 3.3% 7.3%
2010 0.9% 52.7% 34.4% 3.4% 8.6%
2011 1.0% 50.7% 35.8% 3.2% 9.3%
2012 0.9% 47.2% 38.7% 3.1% 10.1%
2013 1.0% 46.2% 39.4% 3.2% 10.2%
2014 1.0% 43.6% 41.9% 3.2% 10.3%
2015 1.0% 43.0% 12.7% 3.3% 10.0%
2016 1.0% 42.4% 43.3% 3.4% 9.9%
2017 1.1% 42.0% 43.6% 3.4% 9.9%
2017 (aggregate) 1.1% 36.9% 44.7% 4.8% 12.5%

Source: Willis Towers Watson

After substantial changes to allocations between 2009 and 2014, the shift to debt slowed. Average target allocations to public equities fell by only one percentage point during the last three years. Of the 94 companies that reported target asset allocation strategies for 2016 and 2017, nine reduced their target equity allocation by five percentage points or more, with an average reduction of eight percentage points. Four sponsors increased their equity exposure by five percentage points or more, and their average increase was seven percentage points.

Similar to past studies, aggregate results (weighted by DB plan assets) differ from average results for 2017. On an aggregate level, sponsors hold less public equity, and more debt and alternative investments, indicating that the largest plans in this analysis have more fixed-income and alternative investments than the smallest.

Investment returns were just above expectations

After dipping earlier in the year, equity markets rebounded with strong performances during the final two months of 2016, and bond markets realized positive returns as well (Figure 8). Corporate long bonds — used in liability-driven investment (LDI) strategies — realized returns of roughly 10%, which helped mitigate the decline in interest rates (also based on high-quality, long-term corporate bonds).

Figure 8. Returns on major stock and bond indexes* in 2016
Equity returns One-year return
S&P 500 11.96%
Russell 2500 17.59%
Bond returns One-year return
Barclays Aggregate 2.65%
Barclays Long Treasury 1.33%
Barclays Long U.S. Credit 10.22%

*Values displayed for Total Return Indexes
Source: Bloomberg and Barclays Live

In 2016, investment returns averaged 7.8% (aggregate returns were 7.5%), slightly higher than expectations of 7% for these companies (Figure 9).

Figure 9. Investment returns for WTW Pension 100, 2008 – 2016

Figure 9. Investment returns for WTW Pension 100, 2008 – 2016

Source: Willis Towers Watson

During the last three years, annualized returns for WTW Pension 100 sponsors were 5.5%, underperforming expectations. Averaged over the last nine years, annualized investment returns were only 5%, well below expectations, largely because catastrophic returns during the 2008 financial crisis brought the average down. On average, these plan sponsors outperformed expectations in six of the last nine years.

Employer contributions ticked back up in 2016

Most of these companies increased their pension contributions in 2016, and contributions were the highest since the 2012 Moving Ahead for Progress in the 21st Century Act (MAP-21) and follow-on legislation significantly reduced required minimum contributions (Figure 10). WTW Pension 100 plan sponsors contributed $30.9 billion for 2016, a 50% increase from contributions in 2015. During the year, aggregate contributions far exceeded service cost, which was $18.3 billion.7 Companies in this analysis have contributed almost $283 billion to their plans since 2008.

Figure 10. Plan contributions from WTW Pension 100 ($ billions), 2008 – 2016

Figure 10. Plan contributions from WTW Pension 100 ($ billions), 2008 – 2016

Source: Willis Towers Watson

As shown in Figure 11, 55 WTW Pension 100 companies contributed more in 2016 than in 2015, 37 contributed less and eight contributed the same amount in both years (only two companies did not contribute in both years). Even though most companies contributed more in 2016, the increase also reflects sizable contributions from six companies contributing a combined $1.4 billion in 2015 and $9.9 billion in 2016.

Figure 11. Plan contributions ($ billions) from WTW Pension 100, 2015 versus 2016
  Number of companies Aggregate contributions 2015 Aggregate contributions 2016
Larger contribution in 2016 55 $8.9 $23.2
Same contribution both years 8 $0.7 $0.7
Smaller contribution in 2016 37 $11.0 $7.0

Source: Willis Towers Watson

As stated earlier, companies whose funded status increased substantially during 2016 made large contributions. Among companies whose funding levels rose by more than 10 percentage points, the average ratio of plan contributions to plan assets was .141. For those whose funding level rose between five and nine percentage points during 2016, the average ratio of contributions to plan assets was .091. The average was .039 for the entire WTW Pension 100.

Slow and steady decline of plan obligations.

We are witnessing a slow and steady decline in pension obligations (before settlements, changes in interest rates and mortality improvements), as the benefits being paid from these plans are overtaking interest and service cost, which increase the PBO. In 2016, for example, the WTW Pension 100 paid out $73.8 billion in retirement benefits, while service and interest costs totaled $67.3 billion. This can be attributed to a growing number of pension freezes and closes during the past decade, which reduce service cost over time.8


During 2016, investment returns that slightly outperformed expectations combined with sizable contributions were sufficient to offset the higher PBO caused by falling interest rates, keeping pension funding levels steady for the third year in a row.

Two developments will be key in 2017: whether interest rates rise as they did toward the end of 2016, and whether tax reform will occur. With a potential change in the tax code, sponsors might consider accelerating their pension contributions while they still can reap the benefits of higher deductions.9


1. A plan’s aggregate funded status is the ratio of (a) the sum of all assets to (b) the sum of all projected benefit obligations (PBO). Average funded status is calculated by averaging the ratio of (a) to (b) on an individual company basis.

2. The 2016 WTW Pension 100 consists of sponsors of the 100 largest U.S. pension programs among U.S. publicly traded organizations, ranked by PBO at the end of 2015. For some companies, the allocation of disclosed PBO and assets between U.S. and non-U.S. is estimated.

3. Pension liability values in 10-Ks also reflect nonqualified plans (which are usually not shown separately). An analysis of companies that disclose their qualified and nonqualified plans separately found that funded status is typically 8% higher without the nonqualified plan obligations because these plans are typically not funded.

4. See “WTW Pension 100: Year-end 2015 disclosures of funding, discount rates, asset allocations and contributions,” Willis Towers Watson Insider, April 2016.

5. Aggregate funding among these companies is similar on both a U.S. and global basis. For all pensions, domestic and foreign, total PBO increased from $1.55 trillion to $1.58 trillion during 2016. Global pension assets increased from $1.26 trillion to $1.28 trillion over the period. So on a global basis, aggregate funded status decreased minimally from 81.0% to 80.7% over 2016.

6. Target allocation information is usually depicted in ranges in pension disclosures. This study used the midpoint ranges and normalized results to total 100%.

7. Service cost is the value of benefits accrued over the year.

8. See “Transitioning Retirement Benefits in a Complex World,” Willis Towers Watson Insider, November 2016.

9. See “Tax reform proposals: potential implications for retirement and other benefit programs,” Willis Towers Watson, January 2017.