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Corporate pensions are at their healthiest in more than a decade

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Corporate pensions are at their healthiest in more than a decade

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Pension plans for the largest U.S. companies are at their healthiest in more than a decade — and that’s largely good news for the workers who participate in such plans, said retirement experts.

Public companies in the S&P 500 stock index had an average pension “funded ratio” of 102% as of Sept. 21, according to data tracked by financial services firm Aon. That’s the highest level since at least the end of 2011, when the ratio was around 78%.

A funded ratio is one way to gauge pension health. It measures a company’s pension assets versus its liabilities. In other words, it assesses the money a pension has on hand versus the funds a company needs in order to pay future pension income to workers.

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A funded level of 100% or more means it currently has the assets on hand to meet it future obligations.

“This is a really good thing,” Byron Beebe, global chief commercial officer for Aon, said of the current funding level. “It’s at the highest it’s been in a really long time.”

Of course, pension funding is merely a “financial snapshot … at a single moment,” according to the American Academy of Actuaries. It can change based on factors like the health of the U.S. economy. Each plan is unique, meaning funded status alone isn’t the only gauge for pension health, it said.

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Many of those plans are “frozen” and no longer allow workers to accrue benefits, however.

As a result, there are fewer “active” participants, who continue to earn pension credits. In 1975, there were 27.2 million active participants; by 2019, the number had fallen by more than half, to 12.6 million, according to the Congressional Research Service.

In total, there are about 32 million participants in corporate pensions, including both active participants and those no longer accruing benefits, according to the Labor Department.

Having a healthy pension plan makes it more likely companies with active plans will hold onto them and won’t terminate or freeze them, Beebe said.

This is a really good thing. It’s at the highest it’s been in a really long time.

Byron Beebe

global chief commercial officer for Aon

In extreme cases, underfunding can also lead to a benefit cut, experts said.

Companies with failed pensions may transfer their obligations to the federal Pension Benefit Guaranty Corp., which serves as a financial backstop that guarantees pension benefits.

However, beneficiaries aren’t assured to get their fully promised payout. That’s because PBGC insures benefits up to a limit, based on age. Most pensioners aren’t affected by this limit, PBGC said; but those who are would get a benefit reduction.  

Why plan funding has improved

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