ARLINGTON, VA, January 5, 2015 — The pension funded status of the nation’s largest corporate sponsors reversed direction in 2014, dropping nine percentage points as falling interest rates (which increased liabilities) and the impact of new mortality tables were only partially offset by strong returns on pension plan assets, according to a new analysis by global professional services company Towers Watson (NYSE, NASDAQ: TW).

The Towers Watson analysis examined pension plan data for the 411 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 80% at the end of 2014, a decline from 89% at the end of 2013. The analysis also found that the pension deficit increased to $343 billion at the end of 2014, more than twice the deficit at the end of 2013, as overall pension plan funding weakened by $181 billion last year.

Fortune 1000 aggregate pension plan funding levels

Fortune 1000 aggregate pension plan funding levels
*Estimated

“Despite a rising stock market in 2014, funding levels for employer-sponsored pension plans dropped back to what we experienced just after the financial crisis,” said Alan Glickstein, a senior retirement consultant at Towers Watson. “A one-time strengthening of mortality assumptions alone is responsible for about 40% of the increased deficit. We also found that plan sponsors that used liability-driven investing strategies in 2014 had better results, as the declining discount rates were matched with very strong returns for long corporate and Treasury bonds.”

Pension plan assets increased by an estimated 3% in 2014, from $1.36 trillion at the end of 2013 to an estimated $1.4 trillion at the end of last year, reflecting an underlying investment return of about 9%. The analysis also found that investment returns varied significantly by asset class. Large-cap U.S. equities were up roughly 14%, while international equities declined by nearly 5%. The Towers Watson analysis estimates that companies contributed $30 billion to their pension plans in 2014 — 29% less than in 2013 and the lowest level of contributions since 2008. Contributions have declined steadily recently partly due to legislated funding relief.

“For most plan sponsors, the discussion around the Society of Actuaries’ new study on the mortality of pension plan participants was the most significant pension event of the year,” said Dave Suchsland, a senior retirement consultant at Towers Watson. “The study drew the attention of plan sponsors and auditors, resulting in many plan sponsors updating that key assumption.”

“We experienced another big year of pension de-risking in 2014, with significant lump sum buyout and annuity purchase activity. Given the change in funded status, we expect many plan sponsors will need to reevaluate their retirement plan strategies in 2015,” added Suchsland. “Last year’s results surrendered most of the funded status gains earned in 2013. This year will most likely bring higher expense charges and unless there is an uptick in interest rates or equity market performance, eventually additional contribution requirements.”

About the Analysis

The companies analyzed represent 411 Fortune 1000 firms with December fiscal-year-end dates for which complete data were available. The 2014 figures are estimates of U.S. plan assets and liabilities. The earlier figures are actual. Actual year-end 2014 results will not be publicly available until spring 2015.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. With 15,000 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.