$20 billion club: Assets and liabilities peak again while contributions plunge in another record-breaking year

Subscribe

Connect & follow us

Disclosures

These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.

This material is not an offer, solicitation or recommendation to purchase any security.

Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.

Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.

Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the "FTSE RUSSELL" brand.

The Russell logo is a trademark and service mark of Russell Investments.

This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an "as is" basis without warranty.

Source for all charts: 10-k Data

AI-28091-02-23

Just two years ago, we wrote about a record-breaking year in which contributions, liabilities and assets all reached new heights. For quite some time, we have anticipated the moment when DB liabilities peaked for the 20 companies that make up the $20 billion club, who collectively sponsor about 40% of the DB liabilities of US-listed corporations. This seemed inevitable as the growth of many of the plans slowed via plan closures/freezes and significant risk transfer activity. However, due to persistently low discount rates, liabilities have continued to rise, reaching new levels at the end of 2019. Assets also experienced a significant increase in 2019 – rising 9.6% on average over the year.

However, unlike two years ago, contributions set a new type of record. Instead of rising, they fell to the lowest level since 2008 in the midst of the Global Financial Crisis. Clearly, sponsors are continuing to take advantage of ongoing pension funding relief.

Overall, the net effect of this is that funded status stayed roughly the same, likely frustrating sponsors who saw assets rise without a corresponding increase in funded position.

In 2019, assets and liabilities changed for this group in 2019. The year was noteworthy in at least five ways:

  1. Discount rates. As we recently blogged, 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 in recent memory, the magnitude and absolute level of discount rates were significant. In recent history, we have not seen such a large drop (average of about 100 bps) nor a drop to such a low level (some discount rates are now below 3%).

Average discount rates

Average discount rates chart

 

  1. Total liabilities. Many consider DB plans a relic from the past, but despite plan closures, freezes and large risk transfers, they are not going away quickly or quietly. In fact, the DB obligations held on these companies’ balance sheets is up from peak levels in 2017 of $975 billion to the highest on record of $981 billion due to the drop in discount rates. Will this be the peak level?

Total liabilities

  1. Contributions. After a two-year boom motivated by tax reform, contributions in 2019 were drastically down to $12 billion from $28 billion the year before. With funding relief reducing or eliminating contribution requirements for plan sponsors, many find little motivation to contribute more than is required. The year 2020 continues this trend and would actually be less than 2019 if not for GE’s $4-5 billion contribution. The following chart illustrates this trend.

Total contributions

  1. Investment returns. Equity markets recovered well in 2019 from the downturn in late 2018, achieving the highest dollar return in investments for this group on record at $125 billion, far surpassing 2017 returns. This is particularly noteworthy for these DB plan sponsors as many of them have allocated significant portions of their portfolios to fixed income. Long-duration fixed income performed particularly well.

Investment earnings

2019 Investment earnings chart showing how every major asset class gained in 2019.

  1. Total assets. While contributions were down, investments earnings were sufficient to help the total asset base reach another all-time high to $830 billion. Due to the corresponding increase in liabilities, assets still have a long way to adequately fund these plans.

Total assets

Read this collection of "$20 billion club" blog posts

Disclosures

These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.

This material is not an offer, solicitation or recommendation to purchase any security.

Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.

Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.

Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the "FTSE RUSSELL" brand.

The Russell logo is a trademark and service mark of Russell Investments.

This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an "as is" basis without warranty.

Source for all charts: 10-k Data

AI-28091-02-23