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Alternative Market Briefing

Big gains have not improved funded status for U.S. corporate pensions

Friday, January 03, 2020

Laxman Pai, Opalesque Asia:

U.S. companies reaped their biggest return on pension plan assets in 16 years last year, but the funded status for corporate pensions is stagnant.

A new analysis from Willis Towers Watson shows that despite a 19.8 percent average investment return, the decline in interest rates caused their pension debt to grow-wiping out gains from investments in stocks and bonds.

Willis Towers Watson examined pension plan data for 376 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 87% at the end of 2019, compared with 86% at the end of 2018.

The analysis also found the pension deficit is projected to be $216 billion at the end of 2019, slightly lower than the $222 billion deficit at the end of 2018. Pension obligations increased 9% from $1.58 trillion in 2018 to an estimated $1.72 trillion in 2019.

"Significant gains experienced in both the stock and bond markets should have bolstered the financial health of corporate pension plans in 2019," said Joseph Gamzon, senior director, Retirement, Willis Towers Watson.

"However, interest rates were at historically low levels and experienced the largest one-year drop in two decades, resulting in a huge increase in plan obligations and little overall change in the plans' funded status," Gamzon added.

According to the analysis, pension plan assets incre......................

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