The funded status of the nation’s largest corporate pension plans started and finished last year at the same level, as declining interest rates caused pension obligations to grow, offsetting gains from investments in equities and bonds, according to an analysis by Willis Towers Watson.

Willis Towers Watson examined pension plan data for 366 Fortune 1000 companies that sponsor U.S. defined benefit (DB) plans and have a December fiscal-year-end date. Results indicate that the aggregate pension funded status is estimated to be 87% at the end of 2020, unchanged from 87% at the end of 2019. The analysis also found the pension deficit is projected to be $233 billion at the end of 2020, slightly higher than the $230 billion deficit at the end of 2019.

In its U.S. pension briefing for December, River and Mercantile notes that global equities posted a solid month to close out the year, up anywhere from 4% to 8%, with small cap and international developed markets seeing the largest gains. For 2020 as a whole, U.S. equity markets ended the year up 15% to 19%, with international equities posting high single digit returns.

According to River and Mercantile, pension discount rates were basically flat during December, up only 0.02% during the month, leaving the total discount rate decline relative to year-end 2019 at approximately 0.70%. The firm says plans with significant U.S. equity exposure will likely finish off 2020 in a better position than they began.“December proved to be a good month for pension plan sponsors with discount rates remaining flat and positive equity returns translating into funded status gains for most plans. Going into 2021 many plan sponsors will be hoping to see the 2020 trend of declining discount rates reverse course,” says Michael Clark, managing director at River and Mercantile.

“With all the forces at play in the current economic environment, it’s difficult to see how rates will move back to 2018 and 2019 levels in 2021. We expect some movement in discount rates with the improvement in economic activity, but not back to the levels 3.5% to 4.0% from a few years back, at least for the for the first half of 2021.”

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