Funded status of U.S. corporate pension plans rebounded during second quarter
Rise in equity and bond markets fuels partial bounce back, Willis Towers Watson analysis finds
ARLINGTON, Va., July 06, 2020 (GLOBE NEWSWIRE) -- The funded status of the nation’s largest corporate pension plans rebounded during the second quarter of 2020, as improvements in the equity and bond markets offset liability increases attributable to declining interest rates, 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. The analysis shows the aggregate pension funded status is estimated to be 82% as of June 30, 2020, up three percentage points from 79% at the end of the first quarter but below the 87% funded status at the end of 2019. The pension deficit is projected to be $325 billion as of June 30, 2020, an improvement from $365 billion as of March 31, 2020, but higher than the $222 billion deficit at the end of 2019. Pension obligations increased minimally from $1.75 trillion at the end of 2019 and $1.76 trillion as of March 31, 2020, to $1.84 trillion as of June 30, 2020.
“Improvements in the financial markets during the past three months helped to erase nearly 40% of the loss in funded status that corporate pension plans suffered in the first quarter,” said Joseph Gamzon, senior director, Retirement, Willis Towers Watson. “And, if not for a drop in corporate interest rates during the second quarter, plans would have recouped even more of the ground they lost.”
Pension plan assets increased during the second quarter from $1.40 trillion at the end of the first quarter to $1.52 trillion as of June 30, 2020. Overall investment returns are now slightly positive for the first half of 2020, but individual plan results will differ as returns have varied significantly by asset class.
| Investment class | Q1 2020 | Q2 2020 | YTD 2020 |
| Domestic large-cap | –20% | 21% | –3% |
| Domestic small/mid-cap | –30% | 27% | –11% |
| Long corporate bond | –5% | 11% | 6% |
| Long government bond | 21% | 0% | 21% |
“As we move into the second half of 2020, many companies will be facing declining revenue from the impact of the pandemic and higher pension plan costs on the horizon for next year. To navigate this challenge, plan sponsors will need to keep a close eye on interest rates and financial markets while at the same time review and monitor their funding policy, investment allocation and overall risk management approach as they plan for 2021,” said Eric Grant, senior director, Retirement, Willis Towers Watson.
About the analysis
Willis Towers Watson analyzed 366 Fortune 1000 companies for which complete data were available. Second quarter 2020 figures are estimates of U.S. plan assets and liabilities.
About Willis Towers Watson
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.
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