Pension Plan Funding Levels Declined in 2011

According to an analysis by Towers Watson, the average pension funded status declined from 80% at the end of 2010 to an estimated 76% at the end of 2011. This marked the first year since 2008 that pension plan funding levels declined. Average funding levels had improved in both 2009 and 2010 largely due to positive stock market returns and significant employer contributions (offset, in part, by movements in interest rates). The analysis also found that employers contributed more than $70 billion to their pension plans in 2011.

“The return to fully funded pension plans got sidetracked somewhat last year,” said Mike Archer, senior retirement consultant at Towers Watson. “Employers’ sizable cash contributions to their plans could not counteract the effects of lower interest rates and poor stock market results. Despite the small setback, pension plans are still in better shape than they were right after the financial crisis.”

The analysis also found that pension plan assets increased by 1% last year, from $1,193 billion in 2010 to an estimated $1,201 billion in 2011. However, total assets remain well below what they were in 2007, the last year that the average pension plan was fully funded. 

“With interest rates expected to remain low this year, it’s inevitable that many plan sponsors will be making significant cash contributions in 2012. What would be helpful for plan sponsors is much-needed legislative relief that would help manage the impact of volatility in interest rates and encourage employers to fully fund their plans as the fragile economic recovery continues,” said Alan Glickstein, a senior retirement consultant at Towers Watson. 

Other findings from the analysis include:

•  Pension deficits at the companies studied swelled by more than $110 billion over the last year, from $229 billion in 2010 to $343 billion in 2011. Only 5% of plans were estimated to be fully funded.

•  One-in-three (33%) Fortune 1000 companies had estimated pension funding levels under 70% at the end of 2011, a big increase from 21% at the end of 2010.

Four-hundred twenty-two companies were analyzed by Towers Watson, and represent Fortune 1000 firms with December fiscal year-end dates for which complete data were available. These figures are estimates of U.S. plan assets and liabilities.

The Towers Watson analysis can be found at www.towerswatson.com/united-states/newsletters/insider/6450.