Milliman analysis: Funded status
improves in April by $29 billion
The Milliman 100 PFI funded ratio increases to 91.4%,
discount rates rise, solid investment performance continues
The funded status of the 100 largest corporate defined benefit
pension plans increased by $29 billion during April as measured
by the Milliman 100 Pension Funding Index (PFI). The deficit
fell to $145 billion from $174 billion at the end of March due
to an increase in the benchmark corporate bond interest
rates used to value pension liabilities. The funded status
improvement was also supported by investment gains during
April. As of April 30, the funded ratio rose to 91.4%, up from
89.7% at the end of March.
April’s robust 1.09% investment gain increased Milliman 100
PFI asset values by $13 billion to $1.536 trillion at the end of
April. By comparison, the 2019 Milliman Pension Funding Study
reported that the monthly median expected investment return
during 2018 was 0.53% (6.6% annualized). The full results of the
annual 2019 study can be found at milliman.com/pfs.
The Milliman 100 PFI projected benefit obligation (PBO)
decreased by $16 billion during April to $1.681 trillion. The
change resulted from an increase of seven basis points in the
monthly discount rate to 3.85% for April from 3.78% in March.
|Note: Numbers may not add up precisely due to rounding
Over the last 12 months (May 2018 – April 2019), the cumulative
asset gain for these pensions has been 5.19% and the Milliman
100 PFI funded status deficit has grown by $5 billion. The
primary reason for the worsening of the funded status deficit
has been a decline in discount rates over the past 12 months.
During that period, discount rates decreased, moving from
4.03% as of April 30, 2018, to 3.85% a year later. The funded ratio
of the Milliman 100 companies has slightly decreased over the
past 12 months to 91.4% from 91.6%.
FIGURE 1: MILLIMAN 100 PENSION FUNDING INDEX PENSION SURPLUS/DEFICIT
FIGURE 2: MILLIMAN 100 PENSION FUNDING INDEX — PENSION FUNDED RATIO
This May PFI publication reflects the annual update of the
Milliman 100 companies and their 2018 financial figures included
in the Milliman 2019 Pension Funding Study. The revised
December 31, 2018, pension obligation was $11 billion lower than
we previously projected after accounting for lump-sum window
settlements and pension risk transfers (de-risking activities) and
updated mortality assumptions as of year-end 2018.
The actual PFI asset value was $14 billion lower than projected due
to actual investment losses higher than anticipated experienced
during 2018. Higher than expected plan sponsor contributions
during 2018 helped offset the declining plan asset values.
The net adjustments introduced by the Milliman 2019 Pension
Funding Study led to a small funded status drop of $3 billion
and a corresponding decrease to the funded ratio, bringing it
to 89.4% from 89.7% as of December 31, 2018.
If the Milliman 100 PFI companies were to achieve the expected
6.6% median asset return (as per the 2019 pension funding
study), and if the current discount rate of 3.85% were maintained
during years 2019 through 2020, we forecast that the funded
status of the surveyed plans would increase. This would result
in a projected pension deficit of $105 billion (funded ratio of
93.7%) by the end of 2019 and a projected pension deficit of $43
billion (funded ratio of 97.4%) by the end of 2020. For purposes
of this forecast, we have assumed 2019 and 2020 aggregate annual
contributions of $50 billion.
Under an optimistic forecast with rising interest rates (reaching
4.25% by the end of 2019 and 4.85% by the end of 2020) and
asset gains (10.6% annual returns), the funded ratio would
climb to 101% by the end of 2019 and 117% by the end of 2020.
Under a pessimistic forecast with similar interest rate and asset
movements (3.45% discount rate at the end of 2019 and 2.85% by
the end of 2020 and 2.6% annual returns), the funded ratio would
decline to 87% by the end of 2019 and 80% by the end of 2020.
MILLIMAN 100 PENSION FUNDING INDEX — APRIL 2019 (ALL DOLLAR AMOUNTS IN MILLIONS)
PENSION ASSET AND LIABILITY RETURNS
About the Milliman 100 Monthly Pension Funding Index
For the past 19 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 2018 fiscal year and for previous fiscal years. This pension
plan accounting disclosure information was summarized as
part of the Milliman 2019 Pension Funding Study, which was
published on April 16, 2019. 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.