MFA Blog

Corporate Pension Funding Sees Best Improvement in 15 Years

Posted on January 3, 2014

According to reports from Mercer and Towers Watson, the funded status of corporate defined pension plans closed 2103 with the best single-year improvement in 15 years.  The report by Mercer notes the funded status of S&P 1500 company pension plans improved  by 21 percentage points for the year and was up two percentage points to 95% in December alone. Towers Watson estimated that 418 Fortune 1000 companies, with a fiscal year that ended on December 31st, saw their pension funds improve 16 percentage points to a funding level of 93%.

The surge in discount rate, combined with strong investment returns resulted in the best one-year improvement over the last 15 years. Dave Suchsland, senior retirement cosnsultant at Towers Watson said that “it really is (the result of) both pieces moving in the right direction. Equity exposure impacted the results even more than the rate increase.”  Towers Watson reported that the discount rate increased by 84 basis points, and the Mercer report indicated that it increased 98 basis points during 2013 to 4.69%.

As for overall pension deficit, Mercer reports that the deficit was cut by more than 80% from $557 billion to $103 billion with assets increasing 16% to $1.85 trillion for the year. Towers Watson said that assets increased 9% to $1.409 trillion as the deficit improved by $285 billion to $99 billion total at the end of 2013.

The improvement in funded status comes despite a decrease of 23% in aggregate contributions. Suschland stated  that this was likely the “combination of prior legislation driving down the required contributions and companies becoming less likely to make discretionay contributions with returns and rates improving the health of pension plans.”

Read more from P&I here.