The funded status of the 100 largest U.S. corporate defined benefit pension plans improved by $26 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 caused these liabilities to drop $30 billion for the month. As of February 29, the funded ratio for the Milliman 100 plans rose to 104.9%, up from 102.8% at the end of January, and the funded status surplus increased to $63 billion. The funded status improvement comes despite financial market declines, primarily in fixed income, during February.
The PFI plans’ February investment returns were nearly flat, at 0.12%, which caused the market value of PFI plan assets to fall by $4 billion, from $1.353 trillion as of January 31 to $1.349 trillion as of February 29. By comparison, the 2023 Milliman Pension Funding Study reported that the monthly expected investment return during 2022 was 0.47% (5.8% annualized). The full results of the annual 2023 study can be found at www.milliman.com/pfs.
Highlights
| $ BILLION | FUNDED PERCENTAGE | |||
|---|---|---|---|---|
| MV | PBO | FUNDED STATUS | ||
| January | 1,353 | 1,316 | 37 | 102.8% |
| February | 1,349 | 1,286 | 63 | 104.9% |
| Monthly change | (4) | (30) | +26 | 2.1% |
| YTD Change | (17) | (52) | +35 | 2.8% |
Note: Numbers may not add up precisely due to rounding
The projected benefit obligation, or pension liabilities, decreased by $30 billion during February, from $1.316 trillion as of January 31 to $1.286 trillion as of February 29. This change resulted from a 21-basis-point increase in the monthly discount rate, from 5.14% for January to 5.35% for February. Discounts rates have increased in the first two months of 2024 after falling significantly in the last quarter of 2023.
Over the last 12 months (March 2023 to February 2024), the cumulative asset return for these pensions has been 7.62%, and the Milliman 100 PFI funded status surplus has improved by $40 billion. Strong asset returns in most months, along with net discount rate increases, were the key drivers of the funded status improvement. The funded ratio of the Milliman 100 companies has increased to 104.9% from 101.7% over the past 12 months.
The projected asset and liability figures presented in this analysis will be adjusted as part of Milliman’s annual 2024 PFS, which will summarize the most recent plan sponsor financials reported to the U.S. Securities and Exchange Commission. The 2024 PFS will also reflect reported pension settlement and annuity purchase activities that occurred during 2023. 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.
Figure 1: Milliman 100 Pension Funding Index — Pension surplus/deficit
Figure 2: Milliman 100 Pension Funding Index — Pension funded ratio
2024-2025 projections
If the Milliman 100 PFI companies were to achieve the expected 5.8% median asset return (as per the 2023 PFS), and if the current discount rate of 5.35% remains unchanged throughout 2024 and 2025, we forecast that the funded status of the surveyed plans would increase. The pension surplus is projected to be $78 billion (funded ratio of 106.1%) by the end of 2024 and $97 billion (funded ratio of 107.7%) by the end of 2025. For purposes of this forecast, we have assumed 2024 and 2025 aggregate annual contributions of $25 billion.
Under an optimistic forecast with rising interest rates (reaching 5.85% by the end of 2024 and 6.45% by the end of 2025) and annual asset returns of 9.8%, the funded ratio is projected to climb to 116% by the end of 2024 and 130% by the end of 2025. Under a pessimistic forecast with similar interest rate and asset movements (4.85% discount rate at the end of 2024 and 4.25% by the end of 2025 and 1.8% annual asset returns), the funded ratio is projected to decline to 97% by the end of 2024 and 88% by the end of 2025.
Milliman 100 Pension Funding Index - March 2024 (all dollar amounts in millions)
Pension asset and liability returns
About the Milliman 100 monthly Pension Funding Index
For the past 23 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 2022 fiscal year and for previous fiscal years. This pension plan accounting disclosure information was summarized as part of the Milliman 2023 Pension Funding Study, which was published on April 20, 2023. 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.