The funded status of the 100 largest U.S. corporate pension plans fell eight percentage points in 2014 to an aggregate 81%, said a report from Towers Watson.
Aggregate liabilities increased 13.68% to $1.33 trillion in 2014, primarily the result of an 83-basis-point-drop in the discount rate to 4.02%.
Within the overall increase in aggregate liabilities, 4.3 percentage points of it is attributable to plans that strengthened their mortality assumptions, Towers Watson found.
Plan sponsors that updated their mortality assumptions adjusted them in a variety of ways, not necessarily adopting those published by the Society of Actuaries in 2014, said Alan Glickstein, senior retirement consultant at Towers Watson and co-author of the report.
The impact on plan liabilities varied, depending on the strength of the plan’s new assumptions.
Of the 100 companies reviewed, 55 companies disclosed an assumption change and quantified the change, Mr. Glickstein said.
Investments returns, while positive in 2014, were not strong enough to offset the increase in liabilities.
The aggregate and average investment returns were 9.7% and 9.8%, respectively, in 2014, down from 9.8% and 10.8% in 2013.
Low interest rates in 2014 were a tailwind for plan sponsors heavily invested in fixed income, particularly long corporate and Treasury bonds, Towers Watson said. “Equities (also) had a good year, depending on what a sector you were in,” Mr. Glickstein added. Since 2009, average target allocations to equities have fallen by 13 percentage points to 42.4%, while fixed-income allocations have risen by nine percentage points to 42.9%, Towers Watson said.
The report also found that employer contributions fell to $26.5 billion in 2014, the lowest level since 2008 and down from $27.8 billion in 2013 and $44.7 billion in 2012, likely due to legislation that reduced the minimum required contributions. Despite the lower contributions in 2014, on average, contributions are still on pace to keep up with accruing benefits, Mr. Glickstein said.
2015 contribution numbers are hard to predict, Mr. Glickstein said.
Uncertainty over a rate increase and how long the equity bull market will last have some plan executives “scratching their heads” over how much money to put in, he said.
The report also assessed derisking activity in 2014.
Twenty-three of the companies reviewed made lump-sum offers or executed bulk annuity purchases in 2014, which reduced aggregate assets and liabilities by roughly $14 billion total, Towers Watson found. Already in 2015, three of the largest 100 companies in Towers Watson’s universe have started transferring some plan obligations to third-party insurance carriers.
Towers Watson analyzed data from the 100 largest U.S. pension funds sponsored by publicly traded companies with a fiscal year ended Dec. 31.