The funded status of the largest corporate pension plans in the U.S. edged up slightly in 2019 despite corporate plan sponsors seeing the strongest investment gains made since 2003, results of an annual report issued by Willis Towers Watson said.
Meanwhile, employer contributions to pension plans plummeted in 2019.
The report showed that the aggregate pension funded status is estimated to be 87% at the end of 2019, compared with 86% at the end of 2018. The pension deficit is projected to be $216 billion at the end of 2019, slightly lower than the $222 billion deficit at the end of 2018.
Pension obligations reached an estimated $1.72 trillion in 2019, up 9% from $1.58 trillion in 2018, the report said.
Willis Towers Watson examined pension plan data for 376 Fortune 1000 companies that sponsor U.S. defined benefit pension plans and have a December fiscal-year-end date.
Historically low interest rates "almost completely offset the improvements" made from the equity side in 2019, Jennifer Lewis, senior director for retirement, at Willis Towers Watson, said in a phone interview.
Plan assets increased to an estimated $1.5 trillion at the end of 2019 from $1.36 trillion at the end of 2018.
Overall investment returns are estimated to have averaged 19.8% in 2019, though returns varied by asset class. Domestic large-cap equities grew 32%, while domestic smidcap equities experienced gains of 28%. Aggregate bonds saw gains of 9%, while long corporate and long government bonds, typically used in liability-driven investing strategies, enjoyed gains of 23% and 15%, respectively.
Willis Towers Watson estimates these companies contributed $26.3 billion to their plans in 2019 — roughly half of what they contributed in 2018, when many plan sponsors took advantage of the higher tax deductions for pension contributions that existed before the Tax Cuts and Jobs Act of 2017. The larger deduction is no longer available to plan sponsors.
"Companies need to consider their long-term cash funding requirement, especially as IRS funding relief is beginning to fade away," Ms. Lewis said. "It's a good time (for firms) to look at (their) long-term cash needs."
Ms. Lewis also noted that if interest rates do indeed rise, that could create some derisking opportunities for companies.