2015 A “Strange” Year for Corporate Pensions As Funding Stays Put

2015 was a roller-coaster year for pension plans, but the largest corporate pension plans ended up roughly in the same place as they started.

The funding status of the 100 largest U.S. corporate pension plans improved just 0.1% in 2015, according to a report from Milliman.

In a release, the study’s co-author remarked on the “strange” year:

“What a strange year for these 100 pension plans,” says Zorast Wadia, consulting actuary and co-author of the Pension Funding Study. “These pensions weathered volatile markets, unpredictable discount rate movements, adjusted mortality assumptions, pension risk transfers, and an industry-wide decline in cash contributions…and yet they still finished the year almost exactly where they began. Given all that transpired in 2015, plan sponsors may be relieved that plans did not experience funded status erosion like that of the prior year. But that doesn’t change the fact of a pension funded deficit in excess of $300 billion.”

Study highlights include:

Actual returns well below expectations. Actual plan returns were 0.9% for the year—just a fraction of the expected 7.2%.

Impact of updated mortality assumptions. Pension obligations at the end of 2015 were further reduced to reflect refinements in mortality assumptions. While we are unable to collect specific detail regarding the reduction in PBO, a 1% to 2% decrease has been anecdotally reported. Additional revisions to mortality assumptions may be published in the fourth quarter of 2016.

Cash contributions reduced by almost $9 billion. Approximately $40 billion was contributed in 2014, with that number falling to $31 billion in 2015. The likely cause of the decline: the continuation of interest rate stabilization (funding relief) courtesy of the Bipartisan Budget Act of 2015.

Read the full study here.

Photo by Sarath Kuchi via Flickr CC License