The financial health of corporate America’s largest pension plans improved significantly in 2013 as funding improved to a level not seen since the start of the financial crisis, 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 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 US$295.5 billion at year-end 2012 to US$125.9 billion at the end of 2013, a decrease of US$169.6 billion. The pension deficit for these companies hasn’t been this small since 2007, when plans had a surplus of US$82.3 billion.
Meanwhile, the overall average funded status jumped 13 percentage points, from 78% at the end of 2012 to 91% at the end of 2013. That’s the best funding level since the end of 2007, when the average stood at 103%. Additionally, 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, 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,” says Dave Suchsland, senior consultant at Towers Watson. “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.”
According to the analysis, companies continued to contribute relatively large amounts to their plans during 2013, with sponsors’ median contribution 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 US$27.8 billion, down from US$45.2 billion in 2012.
That’s the smallest contribution since 2008, when companies added US$16.8 billion to their plans. After many years of making large contributions, some sponsors took contribution holidays or decided to contribute significantly less in 2013. Six of the 10 largest cash contributors in 2012 pumped US$11.3 billion into their plans, compared with $800 million in 2013.