Corporate defined benefit (DB) plan sponsors face two primary risks: equity risk and interest rate risk.
10 years have passed since the watershed year for pension risk transfer.
Since 2011, we have issued annual reports on the largest listed corporate defined benefit (DB) sponsors in the U.S., codenamed the $20 billion club.
Despite stellar equity returns over the last decade, the funded status for many defined-benefit plan sponsors has either stagnated or fallen. Here's why.
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.
Among the 20 largest US-listed corporate DB sponsors, General Electric Company ended 2018 with the third lowest funded ratio at 75.6%.¹ This is a precipitous decline from 2007, when their funded ratio was the third highest among this group at 129.1%. Over that time period – when the average funded ratio dropped about 20 percentage points - GE's dropped by over 50 percentage points.¹ How did this happen?
Observing the latest developments of the largest corporate defined benefit (DB) plans in the U.S. offers a glimpse into the DB industry, and perhaps a foreshadowing of things to come. After two of the strongest years ever for pension contributions, the coming year may feature the weakest seen in a generation.
2017 was a record-breaking year for the $20 billion club—our name for the U.S. publicly-listed corporations with the largest pension liabilities—in at least five different ways. Contributions were double 2016 levels and nearly triple 2015 levels.