Russell Investments ‘$20 billion club’ analysis: Pension plan funded status hits highest level since 2007

The average global funded status for the largest pension plans jumped to 96.9% in 2022, reaching the highest level since 2007, 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, also experienced the largest asset losses since 2008 amid the Global Financial Crisis and the largest decrease in liabilities since 2009 as discount rates hit the highest level since 2010. The analysis also reveals that funding deficits in dollar terms decreased dramatically from $65 billion at year’s end 2021 to $30 billion at year’s end 2022. 

“Corporate pension trends typically move slowly in fairly predictable patterns with some blips along the way, but the year 2022 may have turned the new normal on its head,” said Justin Owens, director, Investment Strategy & Solutions at Russell Investments. “Investment losses, discount rates, total assets, contributions, liabilities and ultimately funded status all hit levels not seen in at least 10 years.”

Owens added that the effect of actuarial gains (primarily discount rate changes) was larger than any other year since his research began in 2005, and they slightly outpaced the investment losses to improve the funding deficit. He also noted that the impact of employer contributions in 2022 was minimal.

Additional observations from this year’s $20 billion club analysis include:

• Investment returns: This group saw an average loss in assets of 21% in 2022 as nearly every asset class lost ground in the year. “If it were not for an equally historic rise in rates, funded status would have catastrophically deteriorated, as we saw in 2008,” Owens said.

 

• Liabilities dropped below $725 billion in 2022, reaching the lowest level since 2008. Liabilities had surpassed the $1 trillion threshold in 2019 and 2020. “The jump in discount rates seemed to wipe away the past decade of liability growth all at once,” Owens said. “Peak pension seems to be in the rearview mirror.”
• Assets dropped below $700 billion for the first time since 2011, after reaching $933 billion in 2021. Owens noted that the drop in asset values involved the effects of asset returns, expenses and benefit payments, including some large pension risk transfers. He added that unlike 2008, the most recent calendar year when assets dropped this dramatically, liabilities also dropped simultaneously.
  
• Contributions were about $11 billion in 2022, the second-lowest level in the $20 billion club’s history. The high point was $32.3 billion in 2017. Owens noted that the majority of contributions now paid for this group are for unfunded, non-qualified plans for highly compensated employees, and for non-U.S. plans with varying funding requirements. “Discretionary contributions are quite uncommon in the current environment,” he added.

“Looking ahead, the unusual developments of 2022 appear to be taking hold for 2023, based on each company’s disclosed expectations,” Owens said. “If this is the new normal, we’d expect ongoing funding relief and improved funded status will continue to drive contribution decisions.”