The largest defined benefit pension plans in the U.S. saw average funded status improve by eight per cent in 2021, according to a new report by Willis Towers Watson.
It found the country’s largest DB pension plans saw their average funded statuses reach 96 per cent last year, higher than at any point since 2007. At the end of 2020, the average funded status was just 88 per cent.
The report looked at figures from the DB pension plans of companies included on the Fortune 1000 list. This year, the 361 analyzed plans had assets of US$1.67 trillion, up from US$1.933 at the end of 2020.
The rise in the average funding status can be partly attributed to the decline in average pension obligations. The report found the average plan included on the list fell by eight per cent over the year. The overall deficit dropped to US$1.67 trillion by the end of 2021, down from US$1.653 trillion at the end of 2021.
It also found the average pension plan saw asset growth of about one per cent in 2021. Investments in public and private equity reached 8.9 per cent. Overall gains were muted by fixed income performance, with aggregate bonds registering losses of about two per cent.
The report noted that the financial circumstances at the end of 2021 will likely encourage pension plan sponsors to consider adjusting their investment strategies. “Depending on the sponsor’s objectives, that strategy may include executing more pension risk transfers, positioning the plan for the long term or a combination of both,” said Jennifer Lewis, senior director of retirement at Willis Towers Watson, in a press release.