The funded status of the 100 largest corporate defined benefit pension plans improved by $21 billion during February as measured by the Milliman 100 Pension Funding Index (PFI). An increase in the benchmark corporate bond interest rates used to value pension liabilities led to a decrease in these liabilities, representing a gain of $62 billion for the month. As of February 28, the funded ratio for the Milliman 100 plans rose to 111.6%, up from 109.6% at the end of January 2023, and the funded status surplus increased to $154 billion. The funded status improvement comes despite February’s financial market declines.
The market value of assets fell by $40 billion as a result of February’s 2.23% investment loss. The Milliman 100 PFI asset value decreased to $1.480 trillion as of February 28, 2023, from $1.520 trillion as of January 31, 2023. By comparison, the 2022 Milliman Pension Funding Study reported that the monthly median expected investment return during 2021 was 0.48% (5.9% annualized). The full results of the annual 2022 study can be found at www.milliman.com/pfs.
The projected benefit obligation (PBO), or pension liabilities, decreased by $62 billion to $1.325 trillion at the end of February 2023 from $1.387 trillion as of January 31, 2023. The change resulted from a 39-basis-point increase in the monthly discount rate, from 4.85% for January to 5.24% for February. Discount rates have yoyoed in the first two months of 2023 and are up just two basis points since the beginning of the year.
Over the last 12 months (March 2022 to February 2023), the cumulative asset return for these pensions has been -8.13%, and yet the Milliman 100 PFI funded status surplus has improved by $142 billion. Discount rate increases are the main driver of the funded status improvement. The funded ratio of the Milliman 100 companies has increased to 111.6% from 100.7% over the past 12 months.
The projected asset and liability figures presented in this analysis will be adjusted as part of Milliman’s annual 2023 PFS including summarizing and reporting the most recent plan sponsor SEC financials. The 2023 PFS will also reflect reported pension settlement and annuity purchase activities that occurred during 2022. De-risking transactions generally result in reductions in pension funded status since the assets paid to the participants or assumed by the insurance companies as part of the risk transfer are larger than the corresponding liabilities that are extinguished from the balance sheets. To offset this decrease, many companies engaging in de-risking transactions make additional cash contributions to their pension plans to improve the plan’s funded status. We expect to publish our comprehensive recap in April.
|MV||PBO||FUNDED STATUS||FUNDED PERCENTAGE|
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 5.24% were maintained during 2023 and 2024, we forecast that the funded status of the surveyed plans would increase. The pension surplus is projected to rise to $172 billion (funded ratio of 113.1%) by the end of 2023 and to $194 billion (funded ratio of 114.9%) 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 5.74% by the end of 2023 and 6.34% by the end of 2024) and asset gains (9.9% annual returns), the funded ratio would climb to 123% by the end of 2023 and 139% by the end of 2024. Under a pessimistic forecast with similar interest rate and asset movements (4.74% discount rate at the end of 2023 and 4.14% by the end of 2024 and 1.9% annual returns), the funded ratio would decline to 103% by the end of 2023 and 94% by the end of 2024.
Milliman 100 Pension Funding Index - March 2023 (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.