Funded status for US corporate defined benefit (DB) plans in 2014 retreated to post-financial crisis levels, according to Towers Watson.
The consulting group found that aggregate pension plan funding levels for 411 Fortune 1000 companies fell to 80% at the end of last year, nine percentage points behind 2013 figures.
Pension deficits likewise increased to $343 billion at the end of 2014, Towers Watson said, accounting for more than twice the deficit at the end of 2013.
“Despite a rising stock market in 2014, funding levels for employer-sponsored pension plans dropped back to what we experienced just after the financial crisis,” Alan Glickstein, the firm’s senior retirement consultant, said.
Revisions in mortality tables and falling interest rates contributed to an overall decline in funding levels by offsetting strong returns, the analysis concluded, with conditions expected to continue into 2015.
“This year will most likely bring higher expense charges and unless there is an uptick in interest rates or equity market performance, eventually additional contribution requirements,” said Dave Suchsland, Towers Watson’s senior retirement consultant.
In a separate report on 2014 funding levels, Legal & General Investment Management America said there could be an increase in the use of derivative strategies “to increase exposure to return-seeking assets without reallocating out of their fixed income hedge portfolios.”
According Towers Watson’s analysis, pension plan assets saw a bump of about 3% in 2014—to $1.4 trillion from $1.36 trillion at the end of 2013—reflecting an investment return of nearly 9%.
Company contributions continued to decline last year reaching their lowest level since 2008, with just $30 billion flowing into pension plans. This was 29% less than contributions in 2013, the report said.
Plan sponsors using liability-driven investing strategies were better off in 2014 than those with traditional 60/40 portfolios, according to Towers Watson, largely due to declining discount rates matching strong returns for long-duration corporate and treasury bonds.
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