“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,” said Alan Glickstein, a senior retirement consultant at Towers Watson in a statement.
Aggregate pension funded status declined from 89 percent at the end of 2013 to 8 0percent at the end of 2014, according to Towers Watson. In addition, the pension deficit increased to $343 billion at the end of 2014. That is more than twice the deficit at the end of 2013 as overall pension plan funding weakened by $181 billion last year.
The reason for the corporate pension rout? A one-time adjustment to mortality tables used by pension actuaries to determine liability and a continuing low interest rate environment that eroded the returns of fixed-income-heavy plans.
“For most plan sponsors, the discussion around the Society of Actuaries’ new study on the mortality of pension plan participants was the most significant pension event of the year,” said Dave Suchsland, a senior retirement consultant at Towers Watson in a statement. “The study drew the attention of plan sponsors and auditors, resulting in many plan sponsors updating that key assumption.”
The study explained that the mortality change was responsible for about 40 percent of the increased deficit for corporate pension funds.
Overall, corporate pension plan assets increased by an estimated 3 percent in 2014, from $1.36 trillion at the end of 2013 to an estimated $1.4 trillion at the end of last year. In addition, companies contributed $30 billion to their pension plans in 2014 — 29 percent less than in 2013 and the lowest level of contributions since 2008. Contributions have declined steadily recently partly due to legislated funding relief, according to the study.