The Shifting Funding Status of Corporate Defined-Benefit Pension Plans

Abstract

In recent history, corporate defined-benefit pension plans have remained underfunded; however, the economic instability generated by the COVID-19 pandemic prompted the enactment of two massive pieces of federal legislation, both of which included provisions that affected a significant rise in the discount rate utilized to calculate the pension liability. This study provides a detailed comparative analysis of pension funding metrics from 2020 to 2021 for half of the Milliman 100 Companies. Taking into consideration the continuing trend of corporations to shift their defined-benefit plans into defined-contribution plans, the study examines half-active and half-frozen defined-benefit plans. Results indicate that these large corporate defined-benefit pension plans have seen their decades-long underfunded status transmuted into either a significantly less underfunded status or, more often, an overfunded status. Although such results are encouraging in the short-term, economic instability continues to threaten the corporate pension system, and defined-contribution plans may place employee retirement funds at greater risk.