The report also indicated that funding deficits plunged to $30 billion at the end of 2022 from $65 billion at the end of 2021.
In addition, the report revealed that this group of pension plans saw an average loss in assets of 21% last year as almost every asset class incurred losses. "If it were not for an equally historic rise in rates, funded status would have catastrophically deteriorated, as we saw in 2008," said Justin Owens, director, investment strategy and solutions at Russell Investments, in a news release issued in conjunction with the report.
Moreover, liabilities, which had exceeded the $1 trillion level in 2019 and 2020, fell below $725 billion in 2022, the lowest such level since 2008. "The jump in discount rates seemed to wipe away the past decade of liability growth all at once," Mr. Owens said in the release. "Peak pension seems to be in the rearview mirror."
The total assets of this group of plans fell below $700 billion in 2022 for the first time since 2011, after reaching $933 billion in 2021. Mr. Owens commented in the release that this reduction in asset values was due to the "effects of asset returns, expenses and benefit payments, including some large pension risk transfers." He also noted that unlike 2008 — the most recent calendar year that saw a dramatic drop in assets — liabilities also dropped simultaneously.
Contributions amounted to about $11 billion in 2022, far below the high point of $32.3 billion reached in 2017. Mr. Owens explained in the release that the majority of contributions now paid for this group are for unfunded, non-qualified plans for highly compensated employees, and for non-U.S. plans with varying funding requirements.
"Discretionary contributions are quite uncommon in the current environment," he added.
Looking ahead, Mr. Owens added, the "unusual developments of 2022 appear to be taking hold for 2023, based on each company's disclosed expectations. If this is the new normal, we'd expect ongoing funding relief and improved funded status will continue to drive contribution decisions."
Looking at the bigger picture, Mr. Owens said that corporate pension trends "typically move slowly in fairly predictable patterns with some blips along the way, but the year 2022 may have turned the new normal on its head."
Investment losses, discount rates, total assets, contributions, liabilities and ultimately funded status "all hit levels not seen in at least 10 years," he stated.
Mr. Owens further stated in the release that the effect of actuarial gains, primarily discount rate changes, was larger than any other year since his research began in 2005, and that they "slightly outpaced" the investment losses to "improve the funding deficit."
He also indicated that the impact of employer contributions in 2022 was "minimal."
