Conning’s Corporate Pension Annual Review: 2022 - PRTs and Rising Interest Rates Drive Funding Status
May 05, 2023
HARTFORD, CT – May 5, 2023 – Conning’s Annual Corporate Pension Review 2022 found that U.S. corporate defined benefit (DB) pension plans’ funded status increased to 98.1% from 95.7%, its highest level over the period of 2018 through 2022, benefitting from higher discount rates and pension risk transfers (PRTs). This annual review of 508 U.S corporate DB plans analyzes the impact of the pension plan funded status on companies’ earnings and capital. In addition, the report examines key pension metrics by plan asset size and corporate sectors to understand the potential impact of business size and focus.
The year 2022 was a volatile one for U.S. markets. U.S. equity markets turned bearish after a sustained bull market that lasted almost a decade. The U.S. Federal Reserve raised interest rates significantly in an effort to tame inflation; credit spreads widened, the U.S. Treasury yield curve had its largest inversion in more than 40 years, and fixed income investors saw some of their largest annual losses ever.
“As central banks increased interest rates during 2022 to combat inflation, those increases led pension plans to increase the discount rate used to calculate pension liabilities. That discount rate increase contributed to a decrease in pension liabilities. Pension liabilities were further reduced because of PRTs, especially among large plans such as IBM,” said Scott Hawkins, the Head of Insurance Research at Conning.
The improvement in pension plan funding status reduced the amount of pension plan liabilities by 29%, or $473 billion. This was a larger decrease than the $423 billion decrease in pension plan assets. As a result, the aggregate pension plan funding status increased to 98.1%, its highest level over the period of 2018 through 2022. In 2022, fixed income assets were 50.2% of total plan assets, an increase from 49.5% in 2021. Equities were second at 30.1%, compared to 32.9% in 2021.
“PRTs remained an active pension de-risking tool for defined benefit plans in 2022 and this trend is likely to continue. Driving that trend is the higher funding status of many pension plans, which makes it easier to consider a PRT” said Manu Mazumdar, a VP and one of the principal analysts at Conning Insurance Research specializing in retirement and insurance technology at Conning.
“Conning’s Corporate Pension Review - PRTs and Rising Interest Rates Drive Funding Status” is available for purchase from Conning by calling (888) 707-1177 or here.
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Conning (www.conning.com) is a leading investment management firm with a long history of serving the insurance industry. Conning supports institutional investors, including insurers and pension plans, with investment solutions, risk modeling software, and industry research. Founded in 1912, Conning has investment centers in Asia, Europe and North America.
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