The aggregate funding ratio for the pension plans of the 100 largest publicly traded corporations grew to 89% from 77% in 2013, according to a report from Towers Watson.
The ratio improved because of significant asset growth due to strong investment returns for the year, working in tandem with reduced plan liabilities caused by higher interest rates, based on the companies' recently released 10-K filings with the Securities and Exchange Commission.
“I think companies can breathe a little easier,” said Dave Suchsland, senior consulting actuary at Towers Watson, in a telephone interview. “I think their memories are still relatively short but they understand the prospects to the levels we previously had (before 2008) are not impossible.”
The 100 plans' total assets rose to $1.049 trillion as of Dec. 31, up from $1.006 trillion at the end of 2012, an increase of 4.2%. However, the growth was less than the aggregate rate of return for the year of 9.8% due to some plans offering voluntary lump-sum buyouts and purchasing group annuity contracts from insurance companies, which made assets, as well as liabilities, lower.
The total projected benefit obligation dropped to $1.175 trillion from $1.302 trillion the previous year, due to the average discount rate increasing 83 basis points to 4.85% during the year ended Dec. 31.
More plans had surpluses in 2013 than at any time since 2007, with 22 plans recording funding ratios of more than 100% in 2013, compared to five in 2012.
Fifty-one of the top 100 plans had funding surpluses in 2007, the final full year before the financial crisis.
Also, only five of the top 100 plans had a funding ratio of less than 70% at the end of 2013, compared to 26 plans at the end of the previous year.
Despite the improvement, companies have to face higher PBGC premiums and updated mortality tables from the Society of Actuaries reflecting higher life expectancies than previously estimated, increasing plan liabilities.
“When you add the (higher) PBGC premiums and new mortality tables, (companies) will really like the value proposition for doing a lump sum offering … and I think more companies are going to do that,” Mr. Suchsland said.
