Pension Funded Status Dipped in 2012

April 23, 2013 (PLANSPONSOR) – Despite sizable employer contributions and strong investment returns, the funded status of the 100 largest pension plans among U.S. publicly traded organizations fell for the second consecutive year in 2012.

An analysis from Towers Watson cited continued falling interest rates, which pushed liabilities to record highs, as the primary reason for the drop in funded status.

The analysis of year-end corporate disclosures found: 

  • The pension deficit for their U.S. pensions jumped 17%, from $252.7 billion at year-end 2011 to $295.2 billion at year-end 2012, an increase of $42.5 billion. By comparison, these firms had a pension surplus of $86 billion in 2007;
  • The overall aggregate funding ratio declined by two percentage points, from 79% funded at the end of 2011 to 77% funded at the end of 2012;
  • Plan assets increased by 6%, while plan liabilities grew by 8%;
  • An unprecedented level of lump sum buyouts and annuity purchases partially offset the increases in both assets (due to contributions and returns) and liabilities (due to lower interest rates), and reduced the aggregate funded ratio by a little less than 1%; and
  • Without settlement activity, obligations would have increased by 12%, and assets would have increased by 10%.


“Buoyed by the stock market and large contributions, employers have rebuilt their pension plan assets to a point before the 2008 market collapse,” said Alan Glickstein, a senior consultant at Towers Watson. “However, that has been more than offset by growth in liabilities. Four consecutive years of declining interest rates have helped push liabilities 40% higher and left companies with even larger deficits than before.”

According to the analysis, employers contributed $45.1 billion to their pension plans in 2012, which is an increase from $38.9 billion in 2011 and the largest contribution employers have made in the past five years. The analysis noted that the companies contributed more than twice the amount of benefits accrued last year to keep funding levels up.

In addition, over the last few years, many plan sponsors have been gradually adjusting their portfolios to reduce investment risk relative to liabilities, shifting from public equities to fixed-income and alternative investments. Since 2009, average allocations to equities have fallen 10 percentage points, while allocations to fixed-income investments have risen by eight percentage points. However, the shift away from equities slowed in 2012. Of the 95 companies that reported target asset allocation strategies for 2012 and 2013, only three reduced their target equity allocations by 10% or more, versus 16 for 2011.

The analysis found pension plans are off to a good start in 2013. A strong equities market in the first quarter and roughly a 20-basis-point increase in interest rates have reversed the downward trend of the last few years.

“Obviously, there is a long way to go until the end of the year, but funding ratios are moving in the right direction,” said Dave Suchsland, a senior consultant at Towers Watson. “If interest rates don’t continue their rise and equity returns weaken, plan sponsors may need to pour more cash into their plans to improve funded status for the full year.”

Other findings include: 

  • In 2007, over half (51%) of the largest 100 U.S. plan sponsors had fully funded pension plans. In 2012, only five companies in this group were fully funded; and
  • The average discount rate at year-end 2012 was 4.01%, a decline from 4.79% in 2011 and 5.46% in 2010.


The analysis was based on U.S. pension disclosures for the 100 largest pension plan sponsors among publicly traded companies with year-end 2012 fiscal dates, ranked by amount of plan liability at the end of 2011. More information about the analysis can be found here.