Milliman analysis: Funded status declines
by $11 billion in July as discount rates drop
to their lowest point year-to-date
The Milliman 100 PFI funded ratio decreased to 87.9%,
deficit reaches largest amount year-to-date at $216 billion
The funded status of the 100 largest corporate defined benefit
pension plans decreased by $11 billion during July as measured
by the Milliman 100 Pension Funding Index (PFI). The funded
status deficit swelled to $216 billion from $205 billion at the end
of June due to a decrease in the benchmark corporate bond
interest rates used to value pension liabilities. The funded
status decline was partially offset by moderate investment
returns. As of July 31, the funded ratio fell to 87.9%, down from
88.4% at the end of June.
Between June 30 and July 31, the projected benefit obligation
(PBO) increased by $15 billion, raising the Milliman 100 PFI
liability value to $1.783 trillion from $1.768 trillion. The change
was the result of an eight basis point decrease in the monthly
discount rate, which declined to 3.37% for July from 3.45%
in June. July’s discount rate is the third lowest discount in
the 19-year history of the PFI. Only July 2016 and August
2016 experienced lower discount rates, at 3.33% and 3.32%,
July’s 0.56% investment return raised the Milliman 100 PFI asset
value by $4 billion to $1.567 trillion. By comparison, the 2019
Milliman Pension Funding Study reported that the monthly
median expected investment return during 2018 was 0.53%
|Note: Numbers may not add up precisely due to rounding
FIGURE 1: MILLIMAN 100 PENSION FUNDING INDEX PENSION SURPLUS/DEFICIT
FIGURE 2: MILLIMAN 100 PENSION FUNDING INDEX — PENSION FUNDED RATIO
Over the last 12 months (August 2018–July 2019), the cumulative
asset return for these pensions has been 6.42% and the Milliman
100 PFI funded status deficit has worsened by $107 billion.
Discount rates experienced a 74 basis point decrease over the
last 12 months, moving from 4.11% as of July 31, 2018 to 3.37% a
year later. The funded ratio of the Milliman 100 companies has
decreased over the past 12 months to 87.9% from 93.3%.
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 3.37% 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 $190 billion (funded
ratio of 89.3%) by the end of 2019 and a projected pension
deficit of $124 billion (funded ratio of 93.0%) 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
3.62% by the end of 2019 and 4.22% by the end of 2020) and
asset gains (10.6% annual returns), the funded ratio would
climb to 94% by the end of 2019 and 109% by the end of 2020.
Under a pessimistic forecast with similar interest rate and
asset movements (3.12% discount rate at the end of 2019 and
2.52% by the end of 2020 and 2.6% annual returns), the funded
ratio would decline to 85% by the end of 2019 and 78% by the
end of 2020.
MILLIMAN 100 PENSION FUNDING INDEX — JULY 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.