Liabilities Soar for the $20 Billion Club

US corporate pension plans have taken a major hit from new mortality tables and continuously falling interest rates in 2014, according to Russell Investments.

The firm’s study of 19 corporations, each with liabilities exceeding $20 billion—dubbed the “$20 billion club”—revealed improving longevity added some $29 billion, or 3% to 4%, to the combined liabilities in an already negative year for funding levels.

At the end of 2014, Russell said the $20 billion club had collective liabilities of $937.3 billion, up nearly $100 billion from the beginning of the year.

“Even following six years of strong returns, the excess of pension liabilities over pension assets among the 19 corporations that form the $20 billion club was $47 billion larger at the end of 2014 than it was at the end of 2008,” said Bob Collie, chief research strategist for Russell’s American institutional team. “This is proving to be a tough hole to climb out of.”

2014’s liabilities also exceeded the previous peak of 2012 by almost $23 billion, the report said.

While a persistent decline in rates could push liabilities throughout 2015, Collie also gave plan sponsors reason for hope. The combined effect of accrual of new benefits, interest costs, and benefits paid, he noted, could value down obligations by as much as $5 billion to $10 billion.

According to Russell, low rates and new mortality tables also impacted the pension deficit for the $20 billion club in 2014. In the span of one year, their combined pension deficit rose from $114 billion—the lowest since 2007—to $183 billion.

Last month, Moody’s similarly projected US companies would suffer lower funding levels and a surge in aggregate liabilities and deficit.

The ratings agency estimated corporate plans would have an aggregate deficit of $201 billion and an average funding ratio of 78%, an 8% drop from 12 months earlier.

Moody’s also warned last year that increasing longevity would require at least $110 billion of additional contributions from plan sponsors over the next seven years to meet obligations.

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