The public pension crisis continues, but there is a bit of good news out of the corporate pension world. Funding status for corporate defined pension plans in the U.S. has jumped close to 95%, which is the highest percentage recorded since the global financial crisis.

Corporate tax cut helps restore pension funding

In a recent report, HSBC Credit Strategy Head Edward Marrinan and Fixed Income Strategist Shrey Singhal partially credit the Trump administration’s Tax Cut and Jobs Act for the improvement in pension funding.

Under the provisions of the tax cut, U.S. companies were able to deduct contributions to their pension funds from their taxable income through Sept. 15 at the 35% corporate tax rate. To be eligible for the deduction, the contribution must be made within 8-and-a-half months of the end of the pension plan year. The HSBC team believes the deadline provided enough motivation to convince U.S. corporations to make contributions.

The Federal Reserve estimated that private pension plans held approximately $3.4 trillion worth of assets as of June 30.

Private pension funding status in recovery

According to HSBC, funding levels in the private sector have climbed dramatically in the recent years and ended September 94.5% funded. That marks a significant narrowing of the funding deficit which opened up after the 2008 global financial status. As of the end of 2011, the corporate pension deficit was at 78.9%, based on the 100 biggest plans represented in Milliman’s 100 Pension Funding Index.

In addition to the tax cut act, the HSBC team also credits the strong stock market performance for the significant increase in funding among private pension plans. They also believe companies were motivated to fund their pension plans because borrowing costs were so low, noting that last year, many companies in the U.S. issued debt to fund their contributions. Among the companies that did this was General Electric, which issued $6 billion in new debt to top up its underfunded pension plan.