Equity market declines slammed the nation’s largest corporate pension plans, which saw an eight-percentage-point drop in their funding status in the first quarter, according to a news release by Willis Towers Watson, a global advisory, broking and solutions company.
The company said its analysis, which examined pension plan data for 376 Fortune 1000 companies that sponsor U.S. defined benefit pension plans, showed the aggregate pension funded status to be about 79% as of March 31, compared with 87% at the end of 2019. That’s the lowest funded status plans have experienced since 2012, when the year-end funded status stood at 77%, the company said.
The pension deficit is projected to be $365 billion as of March 31, higher than the $229 billion deficit at the end of 2019, the analysis found. Unlike pension assets, pension obligations increased minimally from $1.75 trillion at the end of 2019 to $1.76 trillion at March 31.
The analysis found that pension plan assets decreased during the quarter from $1.52 trillion at the end of 2019 to $1.40 trillion as of March 31. It estimated overall investments suffered a 7% loss in the first quarter, although returns varied significantly by asset class.
Richard McEvoy, U.S. lead of delegated integrated solutions at Willis Towers Watson, pointed out in the release that the fallout from a volatile first quarter was not uniform across plan sponsors. He said the composition of growth assets was the primary driver of results, with diversified allocations mitigating drawdowns on the growth asset side.
“Rates and credit spreads also had a wild ride, and liability-driven investment strategies limited the damage to funding levels in many cases. A key element was how plan sponsors allocated between Treasurys and credit. Overall, we saw significant variations of outcomes, reflecting the wider variation in pension strategies taken today than in years past."