Russell Investments analysis: ‘$20 billion club’ sees record plunge in contributions for 2019, while both assets and liabilities peak again
Annual analysis shows little change in funded status for large pensions amid contrasting trends
SEATTLE, March 4, 2020 — Contributions to large pension plans plunged in 2019, nearly matching their lowest point in the past 15 years. Russell Investments began tracking a group of 20 publicly listed U.S. corporations with pension liabilities in excess of $20 billion in 2005. Dubbed the $20 billion club, these large plans saw contributions in 2019 similar to 2008 amid the global financial crisis. This year’s analysis also reveals assets experienced a significant increase in 2019, rising 9.6% on average over the year.
“The net effect of all of this is that funded status stayed roughly the same for the $20 billion club, likely frustrating sponsors who saw assets increase without a corresponding increase in funded position,” said Justin Owens, director, Investment Strategy & Solutions at Russell Investments.
Owens outlines the following noteworthy developments in his team’s annual analysis of the $20 billion club, which represents nearly 40 percent of all pension and liability assets of U.S. listed corporations.
- Discount rates plunged due to a combination of treasury rates declining and spreads tightening. “While this is not unique in the roller coaster ride of discount rates, the magnitude and absolute level of discount rates were significant,” Owens said. “In recent history, we have not seen such a large drop, with an average of about 100 basis points, and to such a low level, with some below 3%.”
- Total liabilities on the $20 billion club’s collective balance sheet increased again in 2019 to $981 billion, up from a previous peak in 2017 of $975 billion. “This is the highest we’ve seen in our analysis, and we largely attribute it to the discount rate drop during the year,” Owens added. “Despite closures, freezes and large risk transfers, defined benefit plans are not going away quickly or quietly.”
- Contributions dropped drastically from $28 billion in 2018 to $12 billion in 2019, following a two-year boom motivated by U.S. federal tax reform (as shown in the chart below.) “With funding relief reducing or eliminating contribution requirements for many plan sponsors, they find little motivation to contribute more than required,” Owens said. “We would expect to see the club’s contributions decline further in 2020, if not for GE’s announced $4-5 billion contribution.”
- Investment returns achieved the highest dollar return in investments since the $20 billion club analysis began, achieving $125 billion for the group in 2019. “DB plan sponsors benefited from a strong market in 2019 with gains in every major asset class, and it’s particularly noteworthy that long-duration fixed income performed especially well given many of them have allocated significant portions of their portfolios to fixed income,” Owens said.
- Total assets for the $20 billion club reached a new high of $830 billion. “While contributions were down in 2019, investments earnings were sufficient to help the $20 billion club’s total asset base set a new high in our 15-year analysis,” Owens said. However, he concluded that assets continue to have a long way to go to adequately fund these plans due to the corresponding increase in liabilities.
About Russell Investments
Russell Investments is a leading global investment firm providing tailored solutions and services to institutions and individuals through financial intermediaries. Russell Investments is dedicated to improving people’s financial security, leveraging an 83-year client-centric heritage rooted in investment innovation. The firm is the fourth-largest adviser in the world with $307.4 billion in assets under management (as of 12/31/2019) and $2.4 trillion in assets under advisement (as of 6/30/2019) for clients in 32 countries. Headquartered in Seattle, Washington, Russell Investments operates through 21 additional offices in major financial centers such as New York, London, Tokyo and Shanghai.
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