The funded status of the nation’s 100 largest corporate defined benefit pension plans decreased by $7 billion during April, 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 these liabilities of $10 billion for the month. As of April 30, the funded ratio fell to 99.5%, from 100.1% at the end of March. April saw the funding surplus from the beginning of the month change to a funding deficit of $7 billion by the end of the month.
The market value of assets improved by $2 billion because of April’s moderate 0.62% investment return. The Milliman 100 PFI asset value increased to $1.354 trillion as of April 30, 2023, from $1.352 trillion as of March 31, 2023. By comparison, the 2023 Milliman Pension Funding Study (PFS) reported that the monthly median 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.
The Milliman 100 PFI projected benefit obligation increased by $10 billion during April, to $1.361 trillion. The change resulted from a decrease of eight basis points (bps) in the monthly discount rate, from 5.00% in March to 4.92% for April.
Over the last 12 months (May 2022 – April 2023), the cumulative asset return for these pension plans has been a paltry 0.23%, and the Milliman 100 PFI funded status position has declined by $62 billion. The funded status drop is primarily due to poor asset returns. Discount rates experienced a net increase of 62 bps from 4.30% one year ago to 4.92%. The funded ratio of the Milliman 100 companies has dropped over the past 12 months, from 103.7% to 99.5%.
Highlights
| $ BILLION | ||||
| MV | PBO | FUNDED STATUS | FUNDED PERCENTAGE | |
|---|---|---|---|---|
| March | 1,352 | 1,351 | 1 | 100.1% |
| April | 1,354 | 1,361 | (7) | 99.5% |
| Monthly change | +2 | +10 | (7) | -0.6% |
| YTD Change | +7 | +38 | (31) | -2.4% |
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
PFI reconciliation
This May PFI publication reflects the annual update of the Milliman 100 companies and their 2022 financial figures included in the Milliman 2023 PFS.1 The revised December 31, 2022, pension obligation was $14 billion lower and the actual PFI asset value was $151 billion lower than we had previously projected after accounting for actual investment losses greater than projected, lump-sum window settlements and pension risk transfers (de-risking activities) as of year-end 2022, and updates to account for new and exiting companies making up the Milliman 100.
The net adjustments introduced by the Milliman 2023 PFS led to a funded status decline of $137 billion and a corresponding decrease to the funded ratio, bringing it from 110.0% to 101.9% as of December 31, 2022.
2023-2024 projections
If the Milliman 100 PFI companies were to achieve the expected 5.8% average asset return (as per the 2023 PFS), and if the current discount rate of 4.92% were maintained during 2023 and 2024, we forecast that the funded status of the surveyed plans would increase. The funded status is projected to rise to a surplus of $7 billion (funded ratio of 100.5%) by the end of 2023 and to $27 billion (funded ratio of 102.0%) by the end of 2024. For purposes of this forecast, we have assumed 2023 and 2024 aggregate annual contributions of $25 billion.
Under an optimistic forecast with rising interest rates (reaching 5.32% by the end of 2023 and 5.92% by the end of 2024) and asset returns of 9.8% per year, the funded ratio would climb to 108% by the end of 2023 and 121% by the end of 2024. Under a pessimistic forecast with similar interest rate and asset movements (4.52% discount rate at the end of 2023 and 3.92% by the end of 2024 and 1.8% annual returns), the funded ratio would decline to 93% by the end of 2023 and 85% by the end of 2024.
Milliman 100 Pension Funding Index - April 2023 (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.
1 There are also differences in methodology between the results reported in our annual study versus our projected monthly index, so a match is not expected. The annual PFS funded ratio is aggregating plans with different fiscal year ending dates and different discount rates, whereas the monthly PFI makes normalizing adjustments to approximate the values of all 100 companies as of the same measurement date using the same average discount rate.