Contributions increased in 2020, but appear on track for long-term low in 2021
SEATTLE, March 2, 2021 — The average funded status for the largest pension plans increased to 86.2% in 2020, reaching the highest level in eight years, according to Russell Investments’ annual analysis of 20 publicly listed U.S. corporations with more than $20 billion in pension liabilities. Dubbed the $20 billion club, these large plans, which represent nearly 40% of all pension and liability assets of U.S. listed corporations, ultimately benefitted from investment gains in 2020 that offset sharp drops in their discount rates. The analysis, which has been conducted since 2005, also reveals that funding deficits in dollar terms decreased slightly from $150.8 billion in 2019 to $150.3 billion by year’s end 2020.
“It was a turbulent ride, but the $20 billion club ended 2020 with a slightly improved funded ratio as markets soared and discount rates dropped,” said Justin Owens, director, Investment Strategy & Solutions at Russell Investments. “Similar to 2019, actuarial losses increased the group’s deficit, but investment gains and contributions offset this effect.”
Owens added that the $20 billion club has only experienced an annual increase in both investment returns and actuarial gains (usually rising discount rates) once (2013) since 2007.
Contributions ticked up in 2020 from long-term lows in 2019, in part due to Boeing’s significant contribution of employee stock. However, Owens believes this upward trend may not continue in 2021.
“Contributions in 2020 exceeded expectations, but so far in 2021 no member of the $20 billion club has committed to discretionary contributions, which hasn’t happened in the 16 years we’ve tracked this data,” Owens said. “The $5-6 billion in required contributions currently expected for 2021 would be the lowest level we’ve seen in tracking the $20 billion club.” However, Owens believes at least a few $20 billion club members will eventually make large contributions in 2021, particularly if they gain confidence in a post-pandemic economy.
Additional observations from this year’s $20 billion club analysis include:
- Liabilities continued to climb in 2020 on the heels of lower discount rates and new benefit accruals, surpassing $1 trillion for the first time.
- Assets rose to their highest level since tracking the $20 billion club began in 2005, topping $900 billion for the first time. Assets for the group increased to $901.9 billion in 2020 from $830.2 billion in 2019.
- Contributions: Sponsors took advantage of imminent tax changes in 2017 and 2018, contributing over $65 billion in those two years. In the following two years, including 2020, they contributed just $32 billion, as shown in the chart below. “In addition to economic concerns related to the pandemic, few sponsors have significant levels of required contributions in their U.S. plans, particularly with pension funding stabilization still in place,” Owens said.
- Funded ratio: The average increase in funded ratio among the $20 billion club was 1.2%. There was wide variation, however, as Boeing, General Electric and Pfizer saw improvements of nearly 4% with the help of discretionary contributions. Meanwhile, United Parcel Service fell nearly 5%, in large part due to updated estimates on pension benefits for the Central States Pension fund. Honeywell remained the only sponsor in the group with a global funded ratio above 100%.
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 84-year client-centric heritage rooted in investment innovation. Since 1985, for example, with the launch of our first tax-exempt bond fund, the firm has been helping investors grow after-tax wealth. Russell Investments is the fifth-largest adviser globally with $323.7 billion in assets under management (as of 12/31/2020) and $2.5 trillion in assets under advisement (as of 6/30/2020) for clients in 32 countries. Headquartered in Seattle, Washington, Russell Investments operates through 18 additional offices in major financial centers such as New York, London, Tokyo and Shanghai.
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