By some measures, corporate pension plans’ fortunes improved in 2020; by others, they did not. A new analysis reports that for private-sector DB plans’ funded status, 2020 was a wash.
Willis Towers Watson reports that pension plan assets among the plans it studied increased by $80 billion. Drilling down, they estimate that:
- overall investment returns averaged 12.9%;
- domestic large capitalization equities grew 18%, while domestic small/mid-capitalization equities realized gains of 20%;
- aggregate bonds saw gains of 8%;
- long corporate bonds grew by 13%; and
- long government bonds saw gains of 18%.
Data from the investment consulting firm NEPC suggests that the fourth quarter of 2020 helped counter earlier volatility and result in the year-end balance. NEPC cited “a robust equity market in November and December” and gains in risk assets as fuel for the fourth quarter results.
Based on their tracking of the funded status of two hypothetical plans—a total return plan and a liability-driven investment (LDI) plan—NEPC reports that private-sector DB plans’ funded status made “significant gains” in the fourth quarter. During the fourth quarter, the funded status of a total-return plan grew by 5.9%, while that of the LDI plan improved by 5.4%.
However, says Willis Towers Watson, while strong investment gains were good for corporate pension plans, declining interest rates resulted in higher pension obligations. The result: Funded status ending the year exactly where it was at the end of 2019.
The following figures show the mixed bag of year-end results for private-sector DB plans:
|Pension plan assets||$1.52 trillion||$1.60 trillion||+$80 billion|
|Pension plan obligations||$1.75 trillion||$1.83 trillion||+$80 billion|
|Pension plan deficit||$230 billion||$233 billion||+$3 billion|
|Funded status||87%||87%|| —
The Longer View
Private-sector DB plans’ funded status has changed little since 2017, Willis Towers Watson further reports: