The pension funded status of the nation’s largest corporate plan sponsors remained essentially unchanged at the end of 2016 compared with the end of 2015, as lower interest rates, which push up liabilities, negated positive stock market returns, according to an analysis by Willis Towers Watson.
The analysis examined pension plan data for the 410 Fortune 1000 companies that sponsor U.S. defined benefit pension plans and have a December fiscal-year-end date. Results indicate that the aggregate pension funded status is estimated to be 80% at the end of 2016, compared with 81% at the end of 2015. The analysis also found that the pension deficit is projected to have increased $17 billion to $325 billion at the end of 2016, compared to a $308 billion deficit at the end of 2015.
According to the analysis, pension plan assets inched higher in 2016, from $1.30 trillion at the end of 2015 to an estimated $1.31 trillion at the end of last year. Overall investment returns are estimated to have averaged 6.7% in 2016, although returns varied significantly by asset class. Domestic large-capitalization equities returned 12%, while domestic small-/mid-capitalization equities earned 17.6%. Aggregate bonds provided a 2.7% return; long corporate and long government bonds, typically used in liability-driven investing strategies, earned 10.2% and 1.3%, respectively. NEXT: The effect of the Trump election, pension obligations