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Pension Funds

Willis Towers Watson: Corporate pension funding dips in 2018 due to December market plunge

The funded status of the largest corporate pension plans in the U.S. dipped slightly from last year's funding level due to a sharp decline in the stock market in the fourth quarter, said a Willis Towers Watson analysis.

Data from Willis Towers Watson show that the aggregate pension funded status was estimated to be 84% at the end of 2018, down from 85% at the end of 2017.

Although the aggregate pension funded status was on track to be up in 2018 from the year before, the stock market nosedive in December offset what was gearing up to be a second consecutive year of the funding level increasing. The aggregate pension funded status was 90% for the first nine months of 2018.

"The steep decline in the equities market during the fourth quarter, particularly in December, negated what had been a very positive year," said Jennifer DeMeo, senior consultant at Willis Towers Watson, in a news release announcing the analysis.

"Pension plans had been on track for another year of improved funding through the third quarter of 2018 as a result of higher interest rates, relatively stable equity markets and solid contributions," she said.

The analysis also found that the pension deficit is projected to be $255 billion at the end of 2018, slightly lower than the $260 billion deficit at the end of 2017.

Pension assets declined to an estimated $1.33 trillion at the end of 2018 from $1.48 trillion at the end of 2017. Willis Towers Watson estimates that although returns varied significantly by asset class, overall investment returns averaged a -4.7% in 2018.

Domestic large-cap equities lost 4%, while domestic smidcap equities experienced losses of 10%.

Meanwhile, aggregate bonds provided a zero return, while long corporate and long government bonds realized losses of 7% and 2%, respectively.

The analysis estimates the companies Willis Towers Watson tracked contributed $47 billion to their pension plans in 2018. Total pension obligations declined to an estimated $1.59 trillion in 2018 from $1.74 trillion in 2017.

Willis Towers Watson examined pension plan data for 389 Fortune 1000 companies that sponsor U.S. defined benefit plans with a fiscal year ended Dec. 31.