Despite weak investment returns, rising interest rates kept year-end funded status at 95%, WTW analysis finds
ARLINGTON, VA, January 3, 2023 — The funded status of the nation’s largest corporate defined benefit pension plans ended 2022 at the same level as it began the year, as weak investment returns offset lower pension liabilities created by higher interest rates, according to an analysis by WTW (NASDAQ: WTW), a leading global advisory, broking and solutions company.
WTW examined pension plan data for 356 Fortune 1000 companies that sponsor U.S. defined benefit pension plans and have a December fiscal year-end date. The aggregate pension funded status of these plans at the end of 2022 is estimated to be 95%, the same level as at the end of 2021. The analysis also found the funding deficit is projected to be $62 billion at the end of 2022, down from $80 billion at the end of 2021. Pension obligations declined 26% from $1.73 trillion at the end of 2021 to an estimated $1.28 trillion at the end of 2022.
| Year | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Aggregate level | 107% | 77% | 81% | 84% | 78% | 77% | 89% | 81% | 81% | 81% | 85% | 86% | 87% | 88% | 95% | 95%* |
“Corporate pension plans’ 10-year march toward full funding lost momentum in 2022,” said Jason Wilhite, senior director, Retirement, WTW. “Despite asset performance being down during 2022, the historic rise in interest rates also lowered pension liabilities, resulting in no change in funded status for U.S. corporate pension plans as a whole. And while funded status on companies’ balance sheets may be largely unchanged, some sponsors may be faced with higher pension costs heading into 2023 due to the interest rate environment.”
According to the analysis, pension plan assets declined 26% in 2022, finishing the year at $1.22 trillion. Overall investment returns are estimated to have averaged –19% in 2022, although returns varied significantly by asset class. Domestic large capitalization equities as well as domestic small/mid-capitalization equities both fell by –18%. Aggregate bonds recognized losses of –13%, while long corporate and long government bonds, typically used in liability-driven investing strategies, realized losses of –25% and –29%, respectively. The decline in assets year over year was also accelerated by another record year in pension risk transfers and cash contributions that were lower than in typical years.
“We believe plan sponsors should stay vigilant in 2023 as volatility and downside risk remain,” said Joanie Roberts, senior director, Retirement, WTW. “The decline in asset values during 2022 may have increased the risk of future pension contributions for many plan sponsors. With some economists forecasting a potential recession in 2023, sponsors will want to revisit how their strategy for managing pension risk needs to evolve.”
WTW analyzed 356 Fortune 1000 companies with December fiscal year-end dates for which complete data were available. The 2022 figures are estimates of U.S. plan assets and liabilities. The earlier figures are actual. Actual year-end 2022 results will be publicly available in a few months.
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