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Despite strong investment gains, health of largest U.S. corporate pension plans showed no improvement in 2020

Funded status finished 2020 unchanged from level at end of 2019, Willis Towers Watson analysis finds

Investments|Retirement
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January 4, 2021

ARLINGTON, VA, January 4, 2021 — The funded status of the nation’s largest corporate pension plans started and finished 2020 at the same level as declining interest rates caused pension obligations to grow, offsetting gains from investments in equities and bonds. This is 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 and have a December fiscal-year-end date. Results indicate that the aggregate pension funded status is estimated to be 87% at the end of 2020, unchanged from 87% at the end of 2019. The analysis also found the pension deficit is projected to be $233 billion at the end of 2020, slightly higher than the $230 billion deficit at the end of 2019. Pension obligations increased 5% from $1.75 trillion in 2019 to an estimated $1.83 trillion in 2020.

Fortune 1000 aggregate pension plan funding levels
*Estimated
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Aggregate level 106% 77% 81% 84% 78% 77% 89% 81% 81% 81% 85% 86% 87% 87%*

“While funded status rebounded from a disastrous eight-percentage-point drop in the first quarter, plan sponsors ended 2020 frustrated by the lack of progress in shoring up their plans,” said Jeff Brown, managing director, Retirement, Willis Towers Watson. “Continued declines in interest rates have significantly increased liabilities, leaving plans’ funded status levels stuck in neutral for the past three years despite stellar investment performance and significant contributions.”

According to the analysis, pension plan assets increased in 2020 from $1.52 trillion at the end of 2019 to an estimated $1.60 trillion at the end of 2020. Overall investment returns are estimated to have averaged 12.9% in 2020, although returns varied significantly by asset class. Domestic large capitalization equities grew 18%, while domestic small/mid-capitalization equities realized gains of 20%. Aggregate bonds recognized gains of 8%, while long corporate and long government bonds, typically used in liability-driven investing strategies, realized gains of 13% and 18%, respectively.

“Over the past several years, declining interest rates have erased the gains from strong investment performance,” said Monica Martin, senior director, Retirement, Willis Towers Watson. “With limited improvement in funding levels and a low interest rate environment, sponsors will want to consider the effects the pensions may have on corporate earnings and free cash flow while also considering the outlook for future investment performance.”

About the analysis

Willis Towers Watson analyzed 366 Fortune 1000 companies with December fiscal-year-end dates for which complete data were available. The 2020 figures are estimates of U.S. plan assets and liabilities. The earlier figures are actual. Actual year-end 2020 results will be publicly available in a few months.

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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