Pensions See Modest 2009 Uptick

April 7, 2010 ( –The financial health of the nation’s 100 largest corporate pension plans improved modestly in 2009, largely due to strong stock market returns.

A Towers Watson news release said that 2009 funding levels and overall pension plan assets increased over 2008 levels, although funding for both years remained well below 2007 levels. For 2009, Towers Watson said higher liabilities caused by lower discount rates tempered the overall improvement.

The analysis of year-end corporate disclosures found that aggregate funding for their U.S. pensions increased by $26.1 billion last year, shrinking a $209.6 billion deficit at year-end 2008 to a $183.5 billion deficit at year-end 2009.

By comparison, these firms had a pension surplus of $93 billion in 2007. The overall aggregate funding ratio increased from 78% funded at the end of 2008 to 82% funded at the end of 2009. Most plans were fully funded in 2007.

“Last year brought some much needed good news to pension plan sponsors as strong asset returns resulted in modest funding gains,” said Alan Glickstein, senior consultant at Towers Watson, in a press release. “However, employers are not out of the woods just yet. Overall pension deficits remain quite large, and employers will need to contribute significantly more into their plans over the next few years to return to full funding levels.”

According to the analysis, aggregate pension contributions nearly doubled last year — from $15.6 billion in 2008 to $30.8 billion in 2009. However, companies are expecting to make smaller contributions in 2010, approximately $19.6 billion — roughly one-third less than 2009 contributions. For many employers, higher minimum required contributions aren’t due until 2011 and 2012 because of regulatory and legislative relief granted in the past year, Towers pointed out.

The analysis showed that pension plan assets increased by 12% in 2009, from $768 billion at the end of 2008 to $863 billion at the end of last year. This increase was largely due to significant gains in the equities market as well as cash contributions into the plans. In 2009, the average rate of return on plan investments was 18%, compared to an average return of minus 24% in 2008, according to Towers Watson.

Over the last year, most plan sponsors did not change their investment policy although some shifted to a liability-driven investment strategy to better manage their funded status, resulting in a slight shift away from equities. The Towers analysis found that for the 85 companies that provided data, the average target equity allocation is 52.8% for 2010, compared with 55.1% for 2009.

The analysis was based on U.S. pension disclosures for the 100 largest pension plan sponsors among publicly traded companies with year-end 2009 fiscal dates, ranked by amount of plan liability at the end of 2008.