Pension Funding Index


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Milliman analysis: Funded status improves by $38 billion in September

Milliman 100 PFI funded ratio rises to 85.4% due to an increase in interest rates

The funded status of the 100 largest corporate defined benefit pension plans rose by $38 billion during September as measured by the Milliman 100 Pension Funding Index (PFI). The deficit fell to $269 billion primarily due to an increase in the benchmark corporate bond interest rates used to value pension liabilities. Asset returns were flat during September leaving the market value unchanged from last month. As of September 30, the funded ratio increased to 85.4%, up from 83.8% at the end of August.

The market value of assets remained at $1.580 trillion at the end of September due to a monthly investment return of 0.25%. By comparison, the 2019 Milliman Pension Funding Study reported that the monthly median expected investment return during 2018 was 0.53% (6.6% annualized).

HIGHLIGHTS

  $ BILLION  
  MV PBO FUNDED STATUS FUNDED PERCENTAGE
August 1,580 1,887 (307) 83.8%
September 1,580 1,849 (269) 85.4%
MONTHLY CHANGE +0 (38) +38 1.6%
YTD CHANGE +135 +234 (99) -4.0%
Note: Numbers may not add up precisely due to rounding

The projected benefit obligation (PBO) decreased by $38 billion during September, lowering the Milliman 100 PFI value to $1.849 trillion from $1.887 trillion at the end of August. The change resulted from an increase of 14 basis points in the monthly discount rate to 3.09% for September from 2.95% in August. Despite the increase, September’s month-end discount rate of 3.09% ranks as the second lowest discount rate recorded in the 19-year history of the Milliman 100 PFI.

FIGURE 1: MILLIMAN 100 PENSION FUNDING INDEX PENSION SURPLUS/DEFICIT

FIGURE 2: MILLIMAN 100 PENSION FUNDING INDEX — PENSION FUNDED RATIO

Third Quarter 2019 Summary

During the quarter ending September 30, 2019, the funded status deficit expanded by $64 billion. These plans experienced consecutive all-time discount rate lows at the end of August and September. While assets were up $18 billion during the quarter, plan liabilities were up by $82 billion primarily due to declining discount rates. The funded ratio of the Milliman 100 companies declined to 85.4% at the end of September from 88.4% at the end of June.

Over the last 12 months (October 2018–September 2019), the cumulative asset return for these pensions has been 7.17% and yet the Milliman 100 PFI funded status has worsened by $175 billion. The primary reason for the widening of the funded status deficit has been discount rate declines over the past 12 months. Discount rates have eroded falling from 4.18% as of September 30, 2018, to 3.09% a year later. The funded ratio of the Milliman 100 companies has decreased significantly over the past 12 months to 85.4% from 94.2%.

2019-2020 Projections

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 3.09% 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 $253 billion (funded ratio of 86.3%) by the end of 2019 and a projected pension deficit of $186 billion (funded ratio of 89.9%) 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 3.24% by the end of 2019 and 3.84% by the end of 2020) and asset gains (10.6% annual returns), the funded ratio would climb to 89% by the end of 2019 and 104% by the end of 2020. Under a pessimistic forecast with similar interest rate and asset movements (2.94% discount rate at the end of 2019 and 2.34% by the end of 2020 and 2.6% annual returns), the funded ratio would decline to 84% by the end of 2019 and 77% by the end of 2020.

MILLIMAN 100 PENSION FUNDING INDEX — AUGUST 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.

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