Corporate pension funding levels declined in 2014

 

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, was only partially offset by strong returns on pension plan assets, according to Towers Watson. The Towers Watson analysis indicates 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.

“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.”

According to Dave Suchsland, a senior retirement consultant at Towers Watson, a Society of Actuaries’ study on the mortality of pension plan participants “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.”

Source: Towers Watson press release, January 5, 2015.

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