Towers Watson: Fortune 1000 DB plan funding takes slight hit in 2012

The aggregate funded status of Fortune 1000 companies' defined benefit pension plans decreased three percentage points in 2012 to an estimated 75% despite strong market returns and pension contributions, according to a Towers Watson report.

Pension plan assets increased 4% in 2012 to $1.266 trillion, but plan funding decreased by $79 billion to an aggregate $418 billion deficit.

The aggregate ratio was 84% in 2010 and 78% in 2011.

When pension plans have experienced big drops in funded status in the last 25 years, typically they have had a steady recovery in the following years, but it is “not anywhere closer to filling the gap the recession left” right now, said Alan Glickstein, senior retirement consultant at Towers Watson, in a telephone interview.

Mr. Glickstein added the big story of 2012 was that interest rates decreased even more in the past year when it was thought they had bottomed out at the end of 2011. “I'm cautious in assuming (rates) hit rock bottom,” he said.

Of the 429 Fortune 1000 companies analyzed by Towers Watson that offer a pension plan, an estimated $72 billion was contributed to the plans last year, but the report acknowledges that estimate could be high with pension funding relief included in the federal highway bill passed last year. Lower contributions would cause the aggregate funded status to decline further.

There is not any specific trend in what companies are doing to contribute to their plans, Mr. Glickstein said. Some are making larger contributions believing the low-rate environment is a new normal while others are taking advantage of the funding relief.

“Many view interest rates as temporarily, artificially high,” Mr. Glickstein said.