Company Pension Funding Status Rises in the United States in 2021

By on January 5, 2022 0

According to a report by Willis Towers Watson, the average funded status of the largest corporate defined benefit (DB) pension plans in the United States jumped in 2021 to reach their highest level in 14 years thanks to solid returns on investment and rising interest rates.

“Defined benefit plan sponsors have made great strides in 2021 towards full funding, which many plans have not experienced since before the 2008 financial crisis,” said Joseph Gamzon, CEO of retirement at Willis Towers Watson, in a press release. “And since 2008, many sponsors have positioned their plans better against market risk, primarily through changes in investment allocation and settlement activity.”

The overall funded status of pension plans was estimated at 96% at the end of 2021, up from 88% at the end of 2020, according to pension data from 361 US Fortune 1000 companies that sponsor DB plans with an exercise in December. -end date. Willis Tower Watson said this was the highest funded level since 2007, which was also the last year the Fortune 1000 defined benefit plans were fully funded.

Combined pension plan assets edged up (up 1%) during the year to $ 1.67 trillion, with an estimated average return on investment of 8.9%. Returns varied widely by asset class, with national large-cap stocks averaging 29%, while national small / mid-cap stocks gained 18%. Aggregate bonds lost 2%, while long corporate and government bonds, which are often used in liability-based investing (LDI) strategies, recorded losses of 1% and 5%, respectively.

The report also says that the overall plan funding gap fell sharply during the year to about $ 63 billion, from $ 232 billion at the end of 2020. $ 1.89 trillion the previous year .

Willis Tower Watson said year-over-year asset growth was limited by a record year in retirement risk transfers (PRTs) and cash contributions below typical years.

“The improved funding position associated with the changes in funding rules provide plan sponsors with the opportunity to advance their retirement strategy into 2022,” said Jennifer Lewis, Senior Manager, Retirement, Willis Towers Watson. “Depending on the sponsor’s goals, this strategy may include executing more retirement risk transfers, positioning the plan for the long term, or a combination of both.

Single premium buyout sales in the United States soared in the third quarter to $ 15.8 billion, a jump of 243% and more than three times the $ 4.6 billion recorded in the same period the year before, according to a Secure Retirement Institute (SRI) survey. This is the second highest quarter in sales since the fourth quarter of 2012.

“It looks like 2021 will be another great year for the PRT market,” said Mark Paracer, deputy research director of SRI.

Related stories:

U.S. retirement buyback sales more than tripled in the third quarter to $ 15.8 billion

Special Report: Will Retirement Risk Transfers Ever Control All DB Plans?

Rising Funding Levels, PBGC Bonuses Boost Retirement Buyout Record

Keywords: buyout sales, Company, Defined benefits, funding level, funding status, Jennifer Lewis, Joseph Gamzon, retirement, retirement risk transfer, Willis Towers Watson