These corporations are referred to as the "$20 billion club" as they have historically held more than $20 billion in pension liabilities. These large plans account for about 40% of all pension and liability assets of U.S. listed corporations.
"Despite the ongoing effects of risk transfer, plan closures and plan freezes, total liabilities were still up, due to the decline in discount rates and higher interest cost in comparison to prior years," said Justin Owens, senior director, co-head of strategic asset allocation at Russell Investments, in the report. "The net effect was a slight decline in funding ratio for the $20 billion club, with assets inching downward and liabilities inching upward."
Owens also noted that in 2023 employer contributions hit the lowest level that he has seen in 19 years of tracking data for this group, finishing the year 25% below the high mark in 2017.
Moreover, the average expected return on assets assumptions increased year-over-year, to 6.7% in 2023 from 6.12% in 2022, for the first time since the $20 billion club's inception in 2011.
Between 2013 and 2022, the assumption declined to 6.12% from 7.75%, which Owens attributed to, among other things, an increase in liability-hedging fixed income in defined benefit portfolios as closed or frozen plans implement glidepath strategies naturally reduces return expectations.
"Expected returns on fixed income are much higher than they have been," Owens said. "Most of these companies (13 of 21) chose to increase expected return assumptions for accounting purposes, some quite dramatically. For these companies, a higher EROA assumption would lead to lower pension expense — or higher pension income — disclosed on the corporate income statement."
In addition, Russell's analysis also found that liabilities increased to $708.5 billion at the end of 2023 from about $700 billion at the end of 2022, which marked the lowest such level since 2009.
Moreover, pension assets declined to $665.6 billion at year-end 2023 from $672 billion a year earlier.