Corporate Pension Funded Status Improves in Q2

The funded status of U.S. corporate pension plans improved in the second quarter of 2020, according to two recent studies. Chief among the reasons for the improvement, both studies say, is an improvement in the bond markets.

 

Pension funded status for 366 Fortune 1000 corporate sponsors of U.S. pension plans is still lower than it was at the start of the year, but is better than it was at the end of the first quarter of this year, says Willis Towers Watson. Similarly, the pension deficit in the second quarter was higher than that at the start of the year, but lower than at the end of the first quarter. And the pension obligations continued a gradual increase. Investment consultant NEPC in its June pension funded status report also said it found that liabilities increased in the second quarter.

 

 

Measure	Jan. 1	March 31	June 30	Change, Jan. 1-March 31	Change, March 31-June 30
Pension Funded Status	87%	79%	82%	-8 percentage points	+3 percentage points
Pension Deficit	$222 billion	$365 billion	$325 billion	+143 billion	-$40 billion
Pension Obligations	$1.75 trillion	$1.76 trillion	$1.84 trillion	+$10 billion	+80 billion

 

 

NEPC also reported that corporate pension funded status of a typical plan improved in the second quarter. More specifically, they say that the funded status of a total return plan improved by approximately 0.4%, and by more than that for plans with higher interest rate hedges.

 

Both Willis Towers Watson and NEPC cite improvements in the equity markets as a big reason for the improvement in corporate pension funded status. “Equities rebounded off of March lows,” said NEPC.

 

They also cited broader positive trends as further explanation for improvement. Willis Towers Watson noted the improvement in the financial markets in the second quarter; NEPC discussed the effect of monetary and fiscal support, the gradual reopening of economies, and the improvement in the U.S. stock market in the second quarter.