The funded status of the largest US corporate pension plans and Canadian defined benefit (DB) pension plans rebounded during the second quarter as resurgent equity and bond markets offset liability increases from falling interest rates.

The funded status for the pension plans for 366 Fortune 1000 companies that sponsor US defined benefit pension plans increased to 82% as of June 30, from 79% at the end of the first quarter, but below the 87% at the end of 2019, according to Willis Towers Watson.

“Improvements in the financial markets during the past three months helped to erase nearly 40% of the loss in funded status that corporate pension plans suffered in the first quarter,” Joseph Gamzon, senior director, retirement, Willis Towers Watson, said in a statement. “And, if not for a drop in corporate interest rates during the second quarter, plans would have recouped even more of the ground they lost.”

The pension deficit among the plans was projected to be $325 billion as of the end of June, down from $365 billion at the end of March, but higher than the $222 billion deficit at the end of 2019.

Pension obligations increased to $1.84 trillion as of June 30 from $1.76 trillion as of March 31, and from $1.75 trillion at the end of 2019. Pension plan assets increased to $1.52 trillion during the second quarter from $1.40 trillion at the end of the first quarter, and investment returns are now slightly positive for the first half of 2020. However, Willis Towers Watson notes that individual plan results will differ as returns by asset class varied significantly.

“As we move into the second half of 2020, many companies will be facing declining revenue from the impact of the pandemic and higher pension plan costs on the horizon for next year,” said Eric Grant, senior consultant at Willis Towers Watson. “Plan sponsors will need to keep a close eye on interest rates and financial markets, while at the same time review and monitor their funding policy, investment allocation and overall risk management approach as they plan for 2021.”

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