Jan 9, 2024 - Economy

Corporate pensions suddenly looking in good shape

Illustration of a piggy bank with glasses, a business tie and briefcase.

Illustration: Megan Robinson/Axios

Corporate pensions are starting to look like a viable option for employers to give to their workers — but companies aren't exactly ready to rewind the clock.

Why it matters: With one in two Americans feeling like they aren't able to save for retirement, the steady and predictable income from pensions could be a welcome proposition.

Driving the news: The spike in interest rates and bond yields has rewired the calculus for pension funds, making their future liabilities look smaller and thus reducing the amount of money that employers are legally required to put into them.

  • "We're in this snapshot in time where corporate pension plans look as good as they will probably at any point" in the near future, pensions expert Anthony Randazzo, executive director of the Equable Institute, tells Axios.

Between the lines: The 100 largest U.S. corporate pension plans now have more money than they need to meet their retirement obligations, according to new estimates released by actuarial firm Milliman.

  • Those plans ended 2023 with 102.1% of the funds they will need to pay their pensioners, having gained $15 billion on the year as the stock market surged, Milliman reports.

But, but, but: The improving health of corporate pension plans doesn't mean that companies will start offering them again.

  • 3m on Monday announced the opposite: It will freeze its U.S. pension plans for non-union employees at the end of 2028.
  • Future workers will be shifted to 401(k) plans as part of a long-running 3M strategy to move away from pensions.

Meanwhile, the United Auto Workers tried to get General Motors, Ford and Stellantis to return to traditional pensions when the union carried out the longest auto strike in half a century this fall.

  • The automakers refused, but UAW President Shawn Fain signaled that he'll push for pensions again when the new contracts expire in 2028.

Context: Companies have been ditching defined-benefit pension plans for decades, many of them shifting instead to defined-contribution plans like 401(k)s that require workers to kick in a percentage of their checks.

  • In 1970, about 45% of U.S. private workers had a pension, according to the American Society of Pension Professionals & Actuaries.
  • By 2022, that was down to 11%, according to the Bureau of Labor Statistics, while 48% had defined-contribution plans,

The intrigue: With many companies struggling to hire or keep workers, "defined-benefit pensions could be a powerful tool for retention," the Wall Street Journal reported.

  • "In the U.S., corporate sponsors of private defined benefit (DB) pension plans seem to have developed a collective blind spot about the potential value of maintaining a well-funded pension," J.P. Morgan Asset Management's Jared Gross and Mike Buchenholz said in a recent report.
  • "Is it time," they asked, "to reopen DB pension plans?"

The bottom line: While corporate pensions look pretty healthy, don't expect a rousing comeback.

Go deeper