The pension funded status of the nation’s largest corporate sponsors increased sharply in 2013 due primarily to rising interest rates (which lowered liabilities) and a strong stock market, according to a new analysis by global professional services company Towers Watson

In reviewing estimated year-end pension plan results, Towers Watson found that 2013 pension plan funding levels increased by 16 percentage points to reach their highest levels since 2007.

The Towers Watson analysis examined pension plan data for the 418 Fortune 1000 companies that sponsor U.S. tax-qualified defined benefit pension plans and have a December fiscal-year-end date.

Results indicate that the aggregate pension funded status is estimated to be 93 percent at the end of 2013, a sharp jump from 77 percent at the end of 2012, but still well below the 106 percent funding at the end of 2007. Overall, pension plan funding improved by $285 billion last year, leaving a deficit of $99 billion at the end of 2013.

Fortune 1000 aggregate pension plan funding levels

Year

Aggregate level

2000

124 percent

2001

101 percent

2002

82 percent

2003

89 percent

2004

90 percent

2005

91 percent

2006

99 percent

2007

106 percent

2008

77 percent

2009

81 percent

2010

84 percent

2011

78 percent

2012

77 percent

2013

93 percent

“The strong stock market and higher interest rates last year gave plan sponsors the one-two punch they needed to cut the funding deficit of their corporate pension plans by nearly 75 percent,” says Alan Glickstein, a senior retirement consultant at Towers Watson. “As a result of the funded status improvement, funding ratios are now at their highest levels since the financial crisis of 2008, but still well below 100 percent, a level reached only three times since 2000. The improved funding environment, together with legislative funding stabilization enacted in 2012, gave plan sponsors some relief from record levels of contributions since the 2008 recession.”

The Towers Watson analysis estimates that companies contributed $48.8 billion to their pension plans in 2013, 30 percent less than in 2012. Pension plan assets increased by an estimated 5 percent in 2013, from $1,288 billion at the end of 2012 to an estimated $1,409 billion at the end of last year.

“The improved funding environment will provide pension plan sponsors with some intriguing opportunities for 2014,” says Dave Suchsland, a senior retirement consultant at Towers Watson. “We expect the actions we’ve seen among companies to de-risk their pension plans over the past several years will accelerate as funding levels continue to improve, especially in light of increases in PBGC premiums and mortality tables, and projection scales with increased life expectancy.”