Press Release

Corporate pension plan funding levels showed little change in 2016, Willis Towers Watson analysis finds

Post- Trump-election interest rate rise, stock market rally reverse earlier slump in funded status

January 3, 2017
| United States

ARLINGTON, VA, January 3, 2017 — In what turned out to be a see-saw year, the pension funded status of the nation’s largest corporate plan sponsors remained essentially unchanged at the end of 2016 compared with the end of 2015, as lower interest rates, which push up liabilities, negated positive stock market returns, according to a new analysis by Willis Towers Watson (NASDAQ: WLTW), a leading global advisory, broking and solutions company.

The Willis Towers Watson analysis examined pension plan data for the 410 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 80% at the end of 2016, compared with 81% at the end of 2015. The analysis also found that the pension deficit is projected to have increased $17 billion to $325 billion at the end of 2016, compared to a $308 billion deficit at the end of 2015.

Fortune 1000 aggregate pension plan funding levels

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*
Aggregate level 101% 82% 89% 90% 91% 99% 106% 77% 81% 84% 78% 77% 89% 81% 81% 80%
*Estimated

“Rising interest rates and the stock market rally following the recent presidential election helped turn around what, to that point, had been a tough year for the funded status of corporate pension plans,” said Alan Glickstein, a senior retirement consultant at Willis Towers Watson. “Before the election, pension plans were on track to decline by roughly five percentage points, as interest rates had dropped considerably over the first half of the year. However, an end-of-year jump in interest rates, coupled with strong equity returns in the stock market, resulted in a rebound in funded status.”

According to the analysis, pension plan assets inched higher in 2016, from $1.30 trillion at the end of 2015 to an estimated $1.31 trillion at the end of last year. Overall investment returns are estimated to have averaged 6.7% in 2016, although returns varied significantly by asset class. Domestic large-capitalization equities returned 12.0%, while domestic small-/mid-capitalization equities earned 17.6%. Aggregate bonds provided a 2.7% return; long corporate and long government bonds, typically used in liability-driven investing strategies, earned 10.2% and 1.3%, respectively.

The Willis Towers Watson analysis estimates that companies contributed $35 billion to their pension plans in 2016. These contributions were significantly higher than the $31 billion employers contributed to their plans in 2015 but still well below contribution levels from previous years. Employer contributions have been declining steadily for the last several years partly due to legislated funding relief.

Total pension obligations moved up from $1.61 trillion to $1.64 trillion. A 28-basis-point decline in discount rates pushed liability values up 3.4%, while a change in anticipated mortality improvements dropped liabilities 0.9%.

“Plan sponsors will want to keep a close watch on two key developments as we move into the new year — whether interest rates continue to rise and President-elect Donald Trump’s promise for tax reform becomes reality. Both of these developments will certainly motivate employers to evaluate their pension de-risking strategies and consider implementing lump sum buyouts or annuity purchases,” said Dave Suchsland, a senior retirement consultant at Willis Towers Watson.

About the analysis

Willis Towers Watson analyzed 410 Fortune 1000 companies with December fiscal-year-end dates for which complete data were available. The 2016 figures are estimates of U.S. plan assets and liabilities. The earlier figures are actual. Actual year-end 2016 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 39,000 employees in more than 120 countries. 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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