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Corporate pension funding ends 2016 slightly down for the year, report says

The funded status of the largest U.S. corporate pension plans fell 1 percentage point to an estimated 80% in 2016, down from 81% at the end of 2015, said Willis Towers Watson on Tuesday.

A roughly 40- to 50-basis-point decline in interest rates before the Nov. 8 election was poised to bring the funded status closer to 75% in 2016, said Alan Glickstein, senior retirement consultant at Willis Towers Watson, in an interview. However, rising interest rates and strong equity returns following the election helped soften the earlier slump.

The funding deficit was $325 billion at the end of the year, compared to $308 billion in 2015, Willis Towers Watson estimated.

Discount rates ultimately declined 28 basis points over the year, which drove total liabilities to an estimated $1.64 trillion, up 1.87% from 2015. Reduced morality assumptions partially offset the liability increase in 2016.

Assets rose 0.77% to $1.31 trillion over the year, the result of average investment returns of 6.7%, Willis Towers Watson estimated.

Among the various asset classes, domestic smidcap equities returned 17.6%; domestic large-cap equities, 12%; long corporate bonds, 10.2%, aggregate bonds, 2.7%; and long government bonds, 1.3%.

Willis Towers Watson also found that companies contributed $35 billion to their pension funds in 2016, up from $31 billion in 2015 but still down from previous years, partly due to legislative funding relief, the firm said.

However, higher Pension Benefit Guaranty Program Corp. premiums have encouraged some plan sponsors to contribute more, and the new administration's promise of tax reform could spur higher employer contributions, Mr. Glickstein said.

Willis Towers Watson analyzed data from 410 Fortune 1000 companies with a fiscal year ended Dec. 31.