Lower interest rates, revised mortality tables hit pension plan funding: Survey
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Slammed by lower interest rates and the adoption of new mortality tables with higher longevity assumptions that fueled a big increase in liabilities, the funded status of pension plans sponsored by large companies dropped sharply in 2014, one survey says.
Pension plans sponsored by Fortune 1000 companies were an average of 80% funded at year-end 2014, according to a Towers Watson & Co. analysis released Friday. That's down from 89% in 2013 and only slightly higher than the 77% average funded level in 2008, when a huge fall in the equities markets sent funding levels plummeting.
“Despite a rising stock market in 2014, funding levels for employer-sponsored plans dropped back to what we experienced just after the financial crisis,” Alan Glickstein, a senior Towers Watson retirement consultant in Dallas, said in a statement.
“A one-time strengthening of mortality assumptions alone is responsible for about 40% of the increased deficit,” Mr. Glickstein added.
Employers contributed about $30 billion to their plans in 2014, about 29% less compared with the prior year and the lowest amount of contributions since 2008.
Contributions have declined at least in part due to legislation Congress passed in recent years that allows employers — for funding purposes — to use higher interest rate assumptions in valuing liabilities.
In all, plans analyzed by Towers Watson had $1.746 trillion in liabilities and $1.402 trillion in assets in 2014, for a funding shortfall of $344 billion. That compares with a funding deficit of $162 billion in 2013, when the plans had $1.358 trillion in assets and $1.520 trillion in liabilities.
The analysis is based on 411 Fortune 1000 companies with December fiscal-year dates for which complete data was available.
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