Funded status of largest U.S. corporate pension plans ends 2023 at 100%

Equity gains helped to offset liability headwinds from falling interest rates, bringing pension plans to full funding for the first time since the 2008 financial crisis

ARLINGTON, Va., Jan. 02, 2024 (GLOBE NEWSWIRE) -- The funded status of the nation’s largest corporate defined benefit (DB) pension plans attained an important milestone in 2023 as investment returns outpaced pension liability movements created by falling interest rates, according to an analysis by WTW (NASDAQ: WTW), a leading global advisory, broking and solutions company.WTW examined pension plan data for 358 Fortune 1000 companies that sponsor U.S. DB pension plans and have a December fiscal year-end date. The aggregate pension funded status of these plans at the end of 2023 is estimated to be 100%, two percentage points higher than 98% at the end of 2022. The analysis found the funding deficit has closed, improved from the $25 billion deficit at the end of 2022. Pension obligations declined slightly (3%) from $1.23 trillion at the end of 2022 to an estimated $1.19 trillion at the end of 2023.

*Fortune* *1000 aggregate pension plan funding levels*Year 2007   2008   2009   2010   2011   2012   2013   2014   2015   2016   2017   2018   2019   2020   2021   2022   2023
Aggregate
level 107%   77%   81%   84%   78%   77%   89%   81%   81%   81%   85%   86%   87%   88%   95%   98%   100%*

*Estimated

“The improvement in the financial health of corporate pension plans in 2023 is welcome news to plan sponsors,” said Jason Wilhite, senior director, Retirement, WTW. “Last year proved to be an up and down year for interest rates and equity markets, particularly during the fourth quarter. But overall, funded status remained relatively stable as interest rates and equity markets largely offset each other, yet it ended the year reaching an important threshold. Additionally, many plan sponsors have made changes to their financial management strategy over the years that are designed to protect funded status.”

According to the analysis, pension plan assets declined 1% in 2023, finishing the year at $1.19 trillion. Overall investment returns are estimated to have averaged 10.4% in 2023, although returns varied significantly by asset class. Domestic large capitalization equities increased by 26%, while domestic small/mid-capitalization equities rose by 17%. Aggregate bonds recognized gains of 6%, while long corporate and long government bonds, typically used in liability-driven investing strategies, realized gains of 11% and 3%, respectively. While investment returns were positive, the decline in assets year over year resulted from another active year in pension risk transfers and cash contributions that were lower than in historical years.

“As we move into 2024, plan sponsors will want to ensure that the cost and risk associated with their DB and other retirement plans remain aligned with their financial objectives. And while DB plans overall are in a strong funded position, the outlook may vary widely based on an individual plan’s position. Some employers may need to accelerate future cash contributions, while others may find that a well-funded plan provides them with additional flexibility to reduce risk or even finance other retirement benefits for employees,” said Joanie Roberts, senior director, Retirement, WTW.

*About the analysis*

WTW analyzed 358 Fortune 1000 companies with December fiscal year-end dates for which complete data were available. The 2023 figures are estimates of U.S. plan assets and liabilities. The earlier figures are actual. Actual year-end 2023 results will be publicly available in a few months.

*About WTW*

At WTW (NASDAQ: WTW), we provide data-driven, insight-led solutions in the areas of people, risk and capital. Leveraging the global view and local expertise of our colleagues serving 140 countries and markets, we help organizations sharpen their strategy, enhance organizational resilience, motivate their workforce and maximize performance.

Working shoulder to shoulder with our clients, we uncover opportunities for sustainable success—and provide perspective that moves you. Learn more at wtwco.com.

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