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
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).
|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%.
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.