Largest Corporate Plans Hit Highest Funded Status Since 2007, Despite 2022 Investment Losses

The 20 biggest corporate defined benefit plans climbed to their highest funded levels last year since 2007, even though they averaged a 21% investment loss, according to a new Russell Investments study.

The pension plans saw their funded ratios rise to 97% for the year ending December 31, 2022, an average annual increase of 2.6 percentage points from fiscal 2021.

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Russell’s report focuses on what it calls “the $20 billion club”—plans with more than that sum in liabilities. This most recent study has, as it turns out, 20 programs on its roster, stretching alphabetically from 3M at the top to United Parcel Service at the bottom. The group’s investment returns mark a reversal from 2021’s 7% gain, not to mention 2020’s 14% and 2019’s 17%.

Offsetting the investment slump was an increase in the discount rate, largely owing to a Federal Reserve-induced hike in short-term interest rates. This had the effect of reducing liabilities by almost $200 billion in total for the group, to $701 billion to end the fiscal year. Liabilities shrank faster than did assets. Meanwhile, sponsor contributions totaled $11 billion, the second lowest in the survey’s history, which began in 2005, and far down from their 2017 peak of $32 billion.

“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,” said Justin Owens, director of investment strategy and solutions at Russell, in a statement. “Investment losses, discount rates, total assets, contributions, liabilities and ultimately funded status all hit levels not seen in at least 10 years.”

The members of Russell’s club have marked significant changes since the fiscal year ended last summer. In September 2022, for instance, IBM did a pension risk transfer, moving $16 billion in DB obligations to Prudential and MetLife. The tech company said that represented 40% of what it owes retirees. Additionally, UPS froze its benefit accruals for non-union employees, effective January 1, 2023.

The Russell 2022 report dovetails with other assessments of plan performances. An allocator survey from Investment Metrics, covering the calendar year ending December 31, found a median loss of 14.6%. That was a broader study, encompassing 1,500 institutional DB pension plans, including public and company plans.

Despite April’s Poor Equity Returns, Rising Discount Rates Improved Funded Status for Most Pensions

US Corporate Pensions’ Funded Status Surges in 2021

Tags: $20 Billion Club, Assets, Contributions, Funded Status, investment losses, Investment Metrics, Liabilities, Russell Investments

2022 was a banner year for risk transfers, setting records in total dollar volume, contracts signed and single-premium buyout deals as rates rose and funding statuses improved.

New data out from LIMRA’s U.S. Group Annuity Risk Transfer Sales Survey showed that single premium buyout sales set a record in the U.S. in 2o22, totaling $48.3 billion in volume during the year, up 42% from 2021. The survey included 20 carriers who represent 100% of the U.S. pension risk transfer market. The annual performance in the deal type was lifted by a remarkable third quarter, which delivered $26.15 billion in single-premium buyout volume.

Q4 2022 was less rosy in terms of deal volume, as it fell to $7.2 billion, down 42% from Q4 2021. But 2022 as a whole set a record for total single-premium buyout contracts, with 562, 34% higher than the total in 2021, and exceeding the previous record of 500, set in 2019.

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“Rising interest rates and equity market volatility created an attractive environment for single premium buy-out sales in 2022,” said Mark Paracer, LIMRA’s assistant research director for retirement plans, in a statement. “While there were a couple of jumbo deals ($1 billion+), the record high number of contracts suggests broad interest from plan sponsors of all sizes. The higher interest rates improved plans’ funding status, enabling more employers to mitigate their risk through a pension risk transfer (PRT) solution.”

Conversely, single-premium buy-in sales fell nearly 9% in 2022 from 2021 volumes, totaling only $3.6 billion in deal volume. Despite the drop-off, Q4 2022 proved to be a bright spot: Three total buy-ins totaled $895 million in volume, more than double the volume in the same quarter one year prior.

In 2022 collectively, single-premium buyout and buy-in sales summed $51.9 billion, a record for an annual total in cumulative sales in U.S. risk transfers. At the end of 2022, total group annuity assets totaled $274 billion, an increase of 14% from the end of 2021. The $234 billion in total single premium buyout assets represented 86% of the total PRT market assets.