Pension Funding Index


  • Print
  • Connect
  • Email
  • Facebook
  • Twitter
  • LinkedIn
  • Google+

Milliman Analysis: Funded status rises by $12 billion in July

The Milliman 100 PFI funded ratio increases to 93.4% due to strong investment performance in July

The funded status of the 100 largest corporate defined benefit pension plans increased by $12 billion during July as measured by the Milliman 100 Pension Funding Index (PFI). The deficit fell to $108 billion from $120 billion due to a robust investment gain of 1.15% for the month. The funded status improvement was partially offset by pension liability increases resulting from a small decrease in the benchmark corporate bond interest rates used to value pension liabilities. As of July 31, the funded ratio climbed to 93.4%, up from 92.7% at the end of June. The last time funded ratios were this high was nearly a decade ago in the fourth quarter of 2008, a time when discount rates were significantly higher relative to today.

The market value of assets rose by $13 billion as a result of July’s investment gain of 1.15%. The Milliman 100 PFI asset value increased to $1.537 trillion from $1.524 trillion at the end of June. By comparison, the 2018 Milliman Pension Funding Study reported that the monthly median expected investment return during 2017 was 0.55% (6.8% annualized).

The projected benefit obligation (PBO) increased by $1 billion during July, raising the Milliman 100 PFI value to $1.645 trillion.

HIGHLIGHTS

  $ BILLION  
  MV PBO FUNDED STATUS FUNDED PERCENTAGE
JUNE 1,524 1,644 (120) 92.7%
JULY 1,537 1,645 (108) 93.4%
MONTHLY CHANGE +13 +1 +12 0.7%
YTD CHANGE (18) (131) +113 5.8%
Note: Numbers may not add up precisely due to rounding

The change resulted from a paltry decrease of one basis point in the monthly discount rate to 4.11% for July from 4.12% in June.

Over the last 12 months (August 2017–July 2018), the cumulative asset return for these pensions has been 5.4% and the Milliman 100 PFI funded status deficit has improved by $138 billion. The primary reason for the improvement in the funded status deficit has been discount rate gains over the past 12 months. Discount rates have risen from 3.71% as of July 31, 2017, to 4.11% a year later. The funded ratio of the Milliman 100 companies has increased over the past 12 months to 93.4% from 85.8%.

FIGURE 1: MILLIMAN 100 PENSION FUNDING INDEX PENSION SURPLUS/DEFICIT

FIGURE 2: MILLIMAN 100 PENSION FUNDING INDEX — PENSION FUNDED RATIO

2018-2019 Projections

If the Milliman 100 PFI companies were to achieve the expected 6.8% median asset return (as per the 2018 Pension Funding Study), and if the current discount rate of 4.11% were maintained during years 2018 through 2019, we forecast the funded status of the surveyed plans would increase. This would result in a projected pension deficit of $85 billion (funded ratio of 94.8%) by the end of 2018 and a projected pension deficit of $21 billion (funded ratio of 98.7%) by the end of 2019. For purposes of this forecast, we have assumed 2018 aggregate contributions of $48 billion and 2019 aggregate contributions of $52 billion.

Under an optimistic forecast with rising interest rates (reaching 4.36% by the end of 2018 and 4.96% by the end of 2019) and asset gains (10.8% annual returns), the funded ratio would climb to 99% by the end of 2018 and 115% by the end of 2019. Under a pessimistic forecast with similar interest rate and asset movements (3.86% discount rate at the end of 2018 and 3.26% by the end of 2019 and 2.8% annual returns), the funded ratio would decline to 91% by the end of 2018 and 84% by the end of 2019.

MILLIMAN 100 PENSION FUNDING INDEX — JULY 2018 (ALL DOLLAR AMOUNTS IN MILLIONS)

PENSION ASSET AND LIABILITY RETURNS

About the Milliman 100 Monthly Pension Funding Index

For the past 18 years, Milliman has conducted an annual study of the 100 largest defined benefit pension plans sponsored by U.S. public companies. The Milliman 100 Pension Funding Index projects the funded status for pension plans included in our study, reflecting the impact of market returns and interest rate changes on pension funded status, utilizing the actual reported asset values, liabilities, and asset allocations of the companies’ pension plans.

The results of the Milliman 100 Pension Funding Index were based on the actual pension plan accounting information disclosed in the footnotes to the companies’ annual reports for the 2017 fiscal year and for previous fiscal years. This pension plan accounting disclosure information was summarized as part of the Milliman 2018 Pension Funding Study, which was published on April 19, 2018. In addition to providing the financial information on the funded status of U.S. qualified pension plans, the footnotes may also include figures for the companies’ nonqualified and foreign plans, both of which are often unfunded or subject to different funding standards than those for U.S. qualified pension plans. They do not represent the funded status of the companies’ U.S. qualified pension plans under ERISA.

Next Steps

For more information, contact: