Financial health of large corporate plans improved in 2013, Towers Watson reports


The financial health of corporate America’s largest pension plans improved significantly in 2013, according to an analysis by Towers Watson. The analysis cited rising interest rates, which lowered liabilities, and moderate investment returns as the primary reasons for the overall improvement.

The Towers Watson analysis of year-end corporate disclosures found that the pension deficit for the 100 largest pension sponsors among U.S. publicly traded organizations fell 57%, from $295.5 billion at year-end 2012 to $125.9 billion at year-end 2013, a decrease of $169.6 billion. The pension deficit for these companies hasn’t been this small since 2007, when plans had a surplus of $82.3 billion. In addition, the analysis found that the overall average funded status jumped 13 percentage points, from 78% at the end of 2012 to 91% at the end of 2013. That is the best funding level since the end of 2007, when the average stood at 103%. Moreover, the number of plan sponsors with fully funded plans surged from five at the end of 2012 to 22 at the end of 2013. At the end of 2007, according to Towers Watson, half of these 100 plans were fully funded.

“Plan sponsors made great strides to shore up the financial condition of their pension plans last year,” said Dave Suchsland, senior consultant at Towers Watson. “The rising stock market, combined with higher interest rates for the first time in five years, pushed funding levels significantly higher. This is good news for employers, as stronger pension fund balance sheets will reduce required cash contributions in the near term while lower pension costs will improve corporate earnings.”

Companies continued to contribute relatively large amounts to their plans during 2013, Towers Watson found, with sponsors’ median contributions being 60% more than the value of benefits accruing during the year. However, the contribution levels were much lower than in prior years. For 2013, plan sponsors contributed $27.8 billion, down from $45.2 billion in 2012. That’s the smallest contribution since 2008, when companies added $16.8 billion to their plans. After many years of making large contributions, Towers Watson said, some sponsors took “contribution holidays” or decided to contribute significantly less in 2013. Six of the 10 largest cash contributors in 2012 pumped $11.3 billion into their plans, compared with $0.8 billion in 2013.

“It will be interesting to see how the improved funding levels, if sustained, and overall financial health of pension plans will affect plan sponsors’ pension de-risking efforts in 2014,” said Alan Glickstein, senior retirement consultant at Towers Watson. “The improved funded position, combined with recent increases in Pension Benefit Guaranty Corporation premiums and a newly released Society of Actuaries mortality study, will make de-risking actions very attractive in 2014,” he added.

Source: Towers Watson press release, March 20, 2014.

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