Watson Wyatt: Pension Funding Up

August 4, 2004 (PLANSPONSOR.com) - The funded status of large company pension plans improved to an average of 88% in 2003, from 82% the year before.

The improvement in funding status came as assets outraced liabilities in 2003.   While pension plan liabilities increased by nearly $125 billion – about 11% – assets increased by $172.4 billion – about 18%, according to an analysis by human capital consulting firm Watson Wyatt.

“After three years of low interest rates and weak investment performance, last year’s increase in funded status is a welcome change,” said Kevin Wagner, a consulting actuary at Watson Wyatt.  “Many employers and participants should be heartened that their pension plans remain well-positioned to pay retirement benefits.”

Also contributing to the improvement in funding status was the $71.6 billion employers chipped into their pension plans in 2003.   This was a significant increase from employer contributions of $44.3 billion in 2002, $14 billion in 2001 and $16.2 billion in 2000.   Further, Watson Wyatt estimates that the companies studied will contribute another $40 billion to their pension plans during 2004

“Employers have demonstrated real commitment to their pension plans, increasing plan contributions while interest rates were low and investment performance was poor,” said Wagner.  “If employers had not attempted to compensate for the ‘perfect storm’ that hit their plans, the average funded status for pension plans would be about 81% today rather than 88%.”

Watson Wyatt also found a continuation in the trend toward fewer defined benefit plans.  The number of Fortune 1000 companies that reported sponsoring a defined benefit plan declined from 660 in 2000 to 622 in 2003.   Watson Wyatt’s analysis was based on information for defined benefit pension plans at those Fortune 1000 companies.