Fortune 1000 companies’ pension plans fared well in 2014, a continuation of trends that began in 2013. And that, says Towers Watson, means that the risks a pension plan poses an employer have shrunk.
The pension risk index score Towers Watson derives to gauge the risk a pension plan poses to a company’s finances fell from 1.8% to 1.2% from 2013 to 2014.
There already had been good news in 2013, when the consulting and professional services firm says the Fortune 1000 pension plans’ funded status improved dramatically from 74% to 88%. It attributed the drop in pension liabilities, and the improved risk index ratings, to:
- higher interest rates, which resulted in lower plan obligations and higher plan funding levels, and
- stock market strength — in particular the improvement in the equity market that took place in 2013-2014 — which resulted in a 29% jump in market capitalization.
But Towers Watson also reported that the stock market is not performing as well now as it was in 2013, and that, as well as drops in interest rates in the first nine months of 2014 and updated mortality tables, could hurt pension funding ratios in the near future.
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