The funded status of the 100 largest corporate defined benefit pension plans decreased by $17 billion during November, as measured by the Milliman 100 Pension Funding Index (PFI). A decrease in the benchmark corporate bond interest rates used to value pension liabilities led to an increase in plan liabilities, representing a loss of $76 billion for the month. This was the second time all year that the monthly discount rate dropped. As of November 30, the funded ratio dipped to 111.2%, down from 113.3% at the end of October, and the funded status surplus decreased to $151 billion.
The market value of assets rose by $59 billion as a result of November’s stellar 4.63% investment gain, the largest monthly investment gain of 2022. The Milliman 100 PFI asset value increased to $1.493 trillion at the end of November. By comparison, the 2022 Milliman Corporate Pension Funding Study (PFS) reported that the monthly median expected investment return during 2021 was 0.48% (5.9% annualized). The full results of the 2022 PFS can be found at www.milliman.com/pfs.
In November, the projected benefit obligation increased to $1.342 trillion from $1.266 trillion at the end of October. The change resulted from a decrease of 55 basis points in the monthly discount rate to 5.16% for November from 5.71% in October. This marked the largest discount rate decline seen all year.
Over the last 12 months (December 2021 to November 2022), the cumulative asset losses for these pension plans has been -11.01%, and yet the Milliman 100 PFI funded status position has improved by $228 billion. The funded status gain is primarily the result of significant increases in discount rates over the past 12-month period. Discount rates increased by 244 basis points to 5.16% from 2.72% one year ago. The funded ratio of the Milliman 100 companies has significantly increased over the past 12 months, to 111.2% from 95.8%.
We will continue to closely monitor the movement of the financial markets and the interest rate environment as year-end approaches.
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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
If the Milliman 100 PFI companies were to achieve the expected 5.9% median asset return (as per the 2022 PFS), and if the current discount rate of 5.16% were maintained during the remaining month of 2022 through the end of 2024, we forecast that the funded status of the surveyed plans would increase. This would result in a projected pension surplus of $175 billion (funded ratio of 113.2%) by the end of 2023 and a projected pension surplus of $198 billion (funded ratio of 115.1%) by the end of 2024. For purposes of this forecast, we have assumed 2023 and 2024 aggregate annual contributions of $20 billion.
Under an optimistic forecast with rising interest rates (reaching 5.81% by the end of 2023 and 6.41% by the end of 2024) and asset gains (9.9% annual returns), the funded ratio would climb to 127% by the end of 2023 and 142% by the end of 2024. Under a pessimistic forecast with similar interest rate and asset movements (4.51% discount rate at the end of 2023 and 3.91% by the end of 2024 and 1.9% annual returns), the funded ratio would decline to 101% by the end of 2023 and 92% by the end of 2024.
MILLIMAN 100 PENSION FUNDING INDEX — NOVEMBER 2022 (ALL DOLLAR AMOUNTS IN MILLIONS)
PENSION ASSET AND LIABILITY RETURNS
About the Milliman 100 monthly Pension Funding Index
For the past 22 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 2021 fiscal year and for previous fiscal years. This pension plan accounting disclosure information was summarized as part of the Milliman 2022 Pension Funding Study, which was published on April 28, 2022. 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.