COVID-19 takes bite out of U.S. corporate pension plans

ARLINGTON, Va., April 02, 2020 (GLOBE NEWSWIRE) — The funded status of the nation’s largest corporate pension plans fell by eight percentage points during the first quarter of 2020, driven primarily by declines in equity markets, according to an analysis by Willis Towers Watson (NASDAQ: WLTW), a leading global advisory, broking and solutions company.Willis Towers Watson examined pension plan data for 376 Fortune 1000 companies that sponsor U.S. defined benefit pension plans. Results indicate the aggregate pension funded status is estimated to be 79% as of March 31, 2020, compared with 87% at the end of 2019. That’s the lowest funded status plans have experienced since 2012, when the year-end funded status stood at 77%. The analysis found the pension deficit is projected to be $365 billion as of March 31, 2020, higher than the $229 billion deficit at the end of 2019. Unlike pension assets, pension obligations increased minimally from $1.75 trillion at the end of 2019 to $1.76 trillion at March 31, 2020.Pension plan assets decreased during the quarter from $1.52 trillion at the end of 2019 to $1.40 trillion as of March 31, 2020. Overall investment returns are estimated to have fallen by 7% in the first quarter, although returns varied significantly by asset class. Domestic large capitalization equities dropped significantly by 20%, while domestic small/mid-capitalization equities fell by 30%. U.S. aggregate bonds recognized gains of 3%, while long corporate and long government bonds, typically used in liability-driven investing strategies, realized drastically different results. Long corporate bonds realized losses of 5% while long government bonds realized gains of 21%.*“The fallout from a volatile first quarter was not uniform across plan sponsors,” said Richard McEvoy, U.S. lead, Delegated Integrated Solutions, Willis Towers Watson. “On the growth asset side, the composition of growth assets was the primary driver of results with diversified allocations mitigating drawdowns. Rates and credit spreads also had a wild ride, and liability-driven investment strategies limited the damage to funding levels in many cases. A key element was how plan sponsors allocated between Treasuries and credit. Overall, we saw significant variations of outcomes, reflecting the wider variation in pension strategies taken today than in years past.”About the analysis About Willis Towers WatsonMedia contactEd Emerman: +1 609 275 5162
eemerman@eaglepr.com*Domestic large capitalization equities are measured by the S&P 500 Index; domestic small/mid-capitalization equities are measured by the Russell 2500 Index; U.S. aggregate bonds are measured by Bloomberg Barclay Aggregate; U.S. long corporate bonds are measured by Bloomberg Barclays Long U.S. Credit; U.S. government bonds are measured by Bloomberg Barclays Long Treasury.Disclaimer – Educational MaterialsThe information included in this presentation is intended for general educational purposes only and does not take into consideration individual circumstances. Such information should not be relied upon without further review with your Willis Towers Watson consultant. The views expressed herein are as of the date given. Material developments may occur subsequent to this presentation rendering it incomplete and inaccurate.  Willis Towers Watson assumes no obligation to advise you of any such developments or to update the presentation to reflect such developments. The information included in this presentation is not based on the particular investment situation or requirements of any specific trust, plan, fiduciary, plan participant or beneficiary, endowment, or any other fund; any examples or illustrations used in this presentation are hypothetical. As such, this presentation should not be relied upon for investment or other financial decisions, and no such decisions should be taken on the basis of its contents without seeking specific advice. Willis Towers Watson does not intend for anything in this presentation to constitute “investment advice” within the meaning of 29 C.F.R. § 2510.3-21 to any employee benefit plan subject to the Employee Retirement Income Security Act and/or section 4975 of the Internal Revenue Code.Actual recommendations, investments or investment decisions made by Willis Towers Watson and its affiliates, whether for its own account or on behalf of others, may not necessarily reflect the views expressed herein. Investment decisions should always be made based on an investor’s specific financial needs.