Corporate pension plan funding levels fell again in 2012, Towers Watson finds

Despite sizable employer contributions and strong investment returns, the funded status of the 100 largest pension sponsors among U.S. publicly traded organizations fell for the second consecutive year in 2012, according to new analysis by Towers Watson. Continued falling interest rates was the primary reason for the drop in funded status, Towers Watson found.

Liabilities higher

The Towers Watson analysis of year-end corporate disclosures found that the pension deficit for their U.S. pensions jumped 17%, from $252.7 billion at year-end 2011 to $295.2 billion at year-end 2012, an increase of $42.5 billion. By comparison, these firms had a pension surplus of $86 billion in 2007. The overall aggregate funding ratio declined by two percentage points, from 79% funded at the end of 2011 to 77% funded at the end of 2012. Plan assets increased by 6%, while plan liabilities grew by 8%.

“Buoyed by the stock market and large contributions, employers have rebuilt their pension plan assets to a point before the 2008 market collapse,” said Alan Glickstein, a senior consultant at Towers Watson. “However, that has been more than offset by growth in liabilities. Four consecutive years of declining interest rates have helped push liabilities 40% higher and left companies with even larger deficits than before.”

Better start for 2013

Pension plans are off to a good start in 2013, according to the study. A strong equities market in the first quarter and roughly a 20-basis-point increase in interest rates have reversed the downward trend of the last few years.

“Obviously, there is a long way to go until the end of the year, but funding ratios are moving in the right direction. If interest rates don’t continue their rise and equity returns weaken, plan sponsors may need to pour more cash into their plans to improve funded status for the full year,” said Dave Suchsland, a senior consultant at Towers Watson.

Source: Towers Watson press release, April 23, 2013.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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