Corporate Pension Plans Drop to Lowest Level in 8 Years

After taking a wallop from the coronavirus in the first quarter, the aggregate funded status of corporate pension plans in the US dropped to its lowest level in eight years.

In March, the average financial status of the largest plan sponsors tumbled to 79%, down eight percentage points from 87% at the end of last year, according to an analysis from Willis Towers Watson, an advisory firm. The figure is the lowest it has been since 2012, when it was 77%.

The drop also wiped about $120 billion in assets from pension plans, which fell to $1.4 trillion last quarter from $1.52 trillion in 2019.

The startling figures are just the latest signifying the impact of the coronavirus on all corners of the financial markets. Overall investment returns fell by 7%, according to the report. But drops were even steeper in other asset classes, particularly in equities. Large cap stocks in the US tumbled 20%. US small- and mid-cap equities fell 30%.

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But analysts found that performance varied across defined benefit plans, and some sponsors who diversified allocations to mitigate the risk of a downturn did better. According to the report, long government bonds saw returns of 21%.

For pension plans, how they perform going forward will depend largely on their cash position and how quickly financial and regulatory markets will recover from the pandemic. A slow recovery could have a material impact.

“Pension plans were already facing a wall of contributions in the years ahead, and depending on speed of recovery, that problem may be aggravated,” said Richard McEvoy, the US lead for delegated integrated solutions at Willis Towers Watson.

The study examined pension plan data for 376 of the Fortune 1000 companies in the US that sponsor defined benefit plans.