Once a liability, company pension plans are starting to generate a surplus for many companies

A growing number of companies have had a pleasant surprise this year. Company pension plans, considered liabilities since the Great Recession, are beginning to record surpluses on their investment returns, according to reports from Milliman and JP Morgan.

“Thirty-six of the 85 Milliman 100 companies whose fiscal year corresponds to the calendar year declared a capitalization surplus at the end of the year 2021, compared to 15 companies in 2020, 13 in 2019, 12 in 2018, eight in 2016, nine in 2015, eight in 2014 and 18 in 2013,” says the Milliman Corporate Pension Funding Study, which surveys the 100 largest corporate pension funds in the United States.

Over the past two decades, the number of company pension plans has declined by 73%, according to the Department of Labor. The main reason for this was poor fund performance combined with high liabilities to retirees. But now corporate defined benefit plans are at their highest funded rate since 2007. The ten-year compounded excess return figure is also now positive, according to peer review of corporate pension plans. of JP Morgan in 2022.

“Essentially, it comes as a benefit to plan sponsors to keep these plans on their books. And we haven’t seen this since 2002,” says Zorast Wadia, senior actuary and consultant at Milliman and co-author of their pension study.

Jared Gross, head of institutional portfolio strategy at JP Morgan and co-author of the JP Morgan analysis, says a surplus opens up many options for companies.

“At a minimum, excess capital is a cushion against pension volatility,” says Gross. “It might even prompt some plan sponsors to reopen plans that have been closed or unfreeze some plans that have been frozen,” he says. “But I’m not expecting much, to be honest. I think part of that is a done deal.

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Tags: Corporate Pension, Jared Gross, JP Morgan, Milliman, surplus, Zorast Wadia