Economic news

US Corporate Pensions at Healthiest Level in a Decade, Aon Data Shows

2023.09.25 16:09



Pension plans for the largest U.S. companies are at their healthiest in over a decade, according to financial services firm Aon (NYSE:). The average pension “funded ratio” for public companies in the stock index was 102% as of last Thursday, marking the highest level since at least the end of 2011 when the ratio stood at around 78%.

The funded ratio is a measure of a pension’s financial health, comparing a company’s pension assets against its liabilities. Essentially, it assesses the money a pension currently has on hand versus the funds a company needs to pay future pension income to workers.

“This is a really good thing,” Byron Beebe, global chief commercial officer for Aon, said on Monday. “It’s at the highest it’s been in a really long time.” However, as the American Academy of Actuaries points out, pension funding is merely a “financial snapshot … at a single moment,” and can change based on factors like the health of the U.S. economy.

This improvement in pension funding is significant for workers. A better funded status makes it more likely companies will keep their pensions active and reduces the risk of benefit cuts for some workers. In extreme cases, underfunding can lead to benefit cuts. Companies with failed pensions may transfer their obligations to the federal Pension Benefit Guaranty Corp., which guarantees pension benefits up to a limit, based on age.

Pensions in the private sector have become rarer over the decades as companies have replaced them with 401(k)-type plans. Defined-benefit plans peaked in 1983 with 175,000 plans in the private sector, but by 2020 that number had declined to about 46,000, according to U.S. Department of Labor data. Many of these plans are now “frozen” and no longer allow workers to accrue benefits.

The recent improvement in pension funding is largely attributable to three factors: a rise in interest rates, strong stock performance, and policy changes to how some companies fund their plans, according to John Lowell, partner at October Three, a pension consulting firm. Higher interest rates on bonds generally mean companies don’t have to contribute as much money to their pensions today to satisfy future benefits. Furthermore, companies have become more proactive about making contributions to their plans to ensure they’re fully funded due to rising insurance premiums paid to the PBGC.

Companies have also adopted investment strategies that fluctuate less with the whims of the investment markets, said Beebe at Aon. For a portion of the portfolio, they buy bonds whose income matches that of future pension promises, offering more predictability.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Source link

Related Articles

Back to top button
bitcoin
Bitcoin (BTC) $ 75,799.31 0.69%
vested-xor
Vested XOR (VXOR) $ 3,405.08 99,999.99%
ethereum
Ethereum (ETH) $ 2,897.00 1.57%
tether
Tether (USDT) $ 1.00 0.02%
solana
Solana (SOL) $ 196.63 2.99%
bnb
BNB (BNB) $ 595.56 1.87%
usd-coin
USDC (USDC) $ 1.00 0.00%
xrp
XRP (XRP) $ 0.550041 0.49%
staked-ether
Lido Staked Ether (STETH) $ 2,895.27 1.24%
dogecoin
Dogecoin (DOGE) $ 0.192217 3.39%
cardano
Cardano (ADA) $ 0.413872 10.50%
tron
TRON (TRX) $ 0.160215 1.33%
the-open-network
Toncoin (TON) $ 4.88 1.66%
wrapped-steth
Wrapped stETH (WSTETH) $ 3,437.23 2.31%
avalanche-2
Avalanche (AVAX) $ 27.28 2.19%
wrapped-bitcoin
Wrapped Bitcoin (WBTC) $ 75,703.28 0.59%
shiba-inu
Shiba Inu (SHIB) $ 0.000019 2.71%
weth
WETH (WETH) $ 2,897.49 1.42%
chainlink
Chainlink (LINK) $ 12.58 0.31%
bitcoin-cash
Bitcoin Cash (BCH) $ 376.33 2.06%
sui
Sui (SUI) $ 2.27 2.52%
polkadot
Polkadot (DOT) $ 4.13 1.24%
leo-token
LEO Token (LEO) $ 6.37 2.49%
usds
USDS (USDS) $ 1.00 0.03%
litecoin
Litecoin (LTC) $ 71.15 0.49%
uniswap
Uniswap (UNI) $ 8.87 5.33%
wrapped-eeth
Wrapped eETH (WEETH) $ 3,048.93 1.94%
near
NEAR Protocol (NEAR) $ 4.18 2.95%
aptos
Aptos (APT) $ 9.56 2.62%
pepe
Pepe (PEPE) $ 0.000011 0.47%
bittensor
Bittensor (TAO) $ 500.87 7.54%
internet-computer
Internet Computer (ICP) $ 7.68 4.45%
fetch-ai
Artificial Superintelligence Alliance (FET) $ 1.40 3.09%
dai
Dai (DAI) $ 1.00 0.06%
monero
Monero (XMR) $ 164.07 0.85%
stellar
Stellar (XLM) $ 0.101153 2.88%
ethereum-classic
Ethereum Classic (ETC) $ 20.05 2.38%
ethena-usde
Ethena USDe (USDE) $ 1.00 0.02%
kaspa
Kaspa (KAS) $ 0.113165 8.13%
whitebit
WhiteBIT Coin (WBT) $ 19.66 2.02%
aave
Aave (AAVE) $ 180.27 4.46%
polygon-ecosystem-token
POL (ex-MATIC) (POL) $ 0.342732 0.88%
blockstack
Stacks (STX) $ 1.66 4.43%
crypto-com-chain
Cronos (CRO) $ 0.089922 4.77%
okb
OKB (OKB) $ 40.10 0.16%
dogwifcoin
dogwifhat (WIF) $ 2.34 4.38%
first-digital-usd
First Digital USD (FDUSD) $ 1.00 0.04%
arbitrum
Arbitrum (ARB) $ 0.575248 1.93%
filecoin
Filecoin (FIL) $ 3.71 2.80%
mantle
Mantle (MNT) $ 0.649737 5.19%