The largest U.S. corporate pension plans' aggregate funding ratio increased modestly to 100% at the end of 2024, according to a new estimate from Willis Towers Watson.
The analysis of pension plan data of 361 Fortune 1000 companies with defined benefit plans estimates the ratio increased from 98% at the end of 2023.
WTW's estimated pension plan assets totaled $1.12 trillion as of Dec. 31, a decline of 8% from the previous year due to another active year in pension risk transfer transactions and a drop in cash contributions. Some of that loss in assets was offset by an estimated average investment return of 3% among the pension plans in WTW’s universe.
Despite a loss of assets, a greater loss in liability values contributed to the 2-percentage-point increase in the average estimated funding ratio. Liabilities declined to an estimated $1.12 trillion as of Dec. 31 from $1.25 trillion a year earlier due to rising interest rates.
Joseph Gamzon, managing director, retirement at WTW, said in a Jan. 2 news release that while strong gains in the stock market and rising interest rates would have raised the average funding ratio further, “pension plan assets are less concentrated on equity investments today, as they hold more bonds to support liability-hedging strategies to provide funded status stability.”
“As a result, many plan sponsors were able to achieve their goals of funded status stability while also seeing moderate increases in pension plan funding during 2024,” Gamzon said.
According to WTW estimates, domestic large-cap equities returned 25% for the year ended Dec. 31, while domestic smidcap equities returned 12%. Long corporate and long government bonds, which corporate plans typically use in liability-driven investing strategies, 2% and 6%, respectively.
