The estimated aggregate funding ratio of U.S. corporate defined benefit plans has reached its highest level since before the financial crisis of 2008, a new report from Willis Towers Watson says.
In an examination of data from 361 Fortune 1000 companies that sponsor DB plans, Willis Towers Watson estimates the aggregate funding ratio reached 96% as of Dec. 31, according to the report released Monday.
It is a significant improvement over the estimated aggregate funding ratio of 88% at the end of 2020 and represents the highest aggregate ratio measured by Willis Towers Watson and its predecessor companies since 2007, when the ratio reached 107%.
Just one year later and with the financial crisis at its worst levels, the aggregate ratio had plummeted to 77% as of Dec. 31, 2008.
Willis Towers Watson cited strong investment returns and rising interest rates for the significant improvement.
"Defined benefit plan sponsors made great headway in 2021 on their path toward full funding, something many plans haven't experienced since prior to the 2008 financial crisis," said Joseph Gamzon, managing director, retirement, at Willis Towers Watson, in a news release Monday. "And since 2008, many sponsors have better positioned their plans relative to market risk, primarily through changes in investment allocation and settlement activity."
The analysis projects estimated the overall funding deficit fell to $63 billion at the end of 2021, thanks to a rise in assets to an estimated $1.67 trillion from $1.66 trillion and a fall in liabilities to an estimated $1.74 trillion from $1.89 trillion a year earlier.
The limited rise in assets was attributed to pension risk transfer transactions, as well as lower overall cash contributions.