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How Did Pension Funding Fare in 2015?

Last year proved to be a volatile one for pension funding, but how did the nation’s largest corporate pension plans fare compared with the year before?

A new analysis by Towers Watson of pension plan data for the 413 Fortune 1000 companies that sponsor defined benefit plans and have a December fiscal year end date found that those plans’ funded status ended 2015 pretty much where it began the year. The analysis estimates their aggregate pension funded status at 82% at the end of 2015, which is the same as it was at the end of 2014.

The analysis also found that the pension deficit narrowed modestly by $28 billion to $291 billion at the end of 2015, compared with a $319 billion deficit at the end of 2014.

Not that there wasn’t movement during the year: Alan Glickstein, a senior retirement consultant at Towers Watson, noted that, “There was a lot of movement in the funded status throughout the year, but at the end of the year, essentially nothing changed overall. In contrast, the preceding two years were more volatile, one up and one down.”

Assets and Returns

According to the analysis, pension plan assets fell by an estimated 6% in 2015, from $1.41 trillion at the end of 2014 to an estimated $1.33 trillion at the end of last year. This reflects increases of roughly 2% due to investment returns and employer contributions, offset by a decline of 8% from benefit payments and settlement transactions.

The Towers Watson analysis also found that investment returns varied significantly by asset class: Domestic large-cap equities increased by 1%, while domestic small- and mid-caps declined by 3%, even as aggregate bonds increased by less than 1%; and long credit bonds, typically used in liability-driven investing strategies, fell by 5%. With asset returns that were insufficient to keep up with the roughly 4% interest accruing on the obligations, the balance was made up by the decline in the obligation produced by the rising interest rates.

The Towers Watson analysis estimates that companies contributed $32 billion to their pension plans in 2015. These contributions were sufficient to cover new benefits earned by employees in 2015 but did not include a meaningful level of additional contributions to reduce the overall funded status deficit. Employer contributions have been declining steadily for the last several years partly due to legislated funding relief, according to the report.