ARLINGTON, VA, January 2, 2024 — 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.
| 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%* |
“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.
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.
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