milliman pension funding report

Corporate Funded Status Improves by $28 billion in October, biggest boost of 2016

Discount rates climbed 29 basis points since August’s record-low, reaching 3.61% in October

SEATTLE, Nov. 10, 2016 /PRNewswire/ — Milliman, Inc., a premier global consulting and actuarial firm, today released the results of its latest Pension Funding Index (PFI).

The index analyzes the 100 largest U.S. corporate pension plans.

In October, the funded status for these pension plans experienced its largest increase of the year, improving by $28 billion, primarily due to interest rate gains that resulted in a $45 billion decrease in pension liabilities. The funded ratio for these plans climbed a whole percentage point, from 76.3% to 77.3%.

“This is the second straight month of funded status gains,” said Zorast Wadia, co-author of the Milliman 100 PFI, “but we’re far from celebrating. These plans are still down $103 billion for the year, thanks to decreases in interest rates and lower-than-expected investment returns. Throw in a divisive election on November 8th, and we’ll see what the rest of 2016 has in store for these plans.”

Excerpts from the Milliman Corporate Pension Funding Report

  • Tumult

In a tumultuous year that buffeted pension plans with volatile markets and interest rate movement, the 100 largest corporate defined benefit (DB) pension plans made little progress in 2015.

The year for DB plans was much like being a passenger on a fishing boat caught in a squall. Heart stopping thunder and lightning swirled and waves crashed. But when it all blew by, DB plans’ funded ratios were in roughly the same place as they’d been before the storm, with a slight improvement as the pension funding deficit declined by $19 billion, settling at $307 billion at the end of 2015.

Somewhat of a surprise is the disclosure that 37 of the largest 100 plan sponsor companies will record fiscal year 2016 pension expense using an accounting calculation method change linked to the spot interest rates derived from yield curves of high quality corporate bonds. Changing to the spot rate method for determining the interest cost of pension expense will result in pension expense savings in 2016 for these 37 plan sponsors.

The December 31, 2015, funded ratio of the plans, as measured from a review of public Securities and Exchange Commission (SEC) filings, was 81.8%, almost indistinguishable from the December 31, 2014, funded ratio of 81.7%.

  • Action… Or No Action

With all of the controversy around the Federal Reserve’s interest rate action–or perhaps not enough action–the 2015 discount rate settled at 4.25%, up 25 basis points from the 2014 discount rate of 4.00%. Admittedly, DB plan obligations are only modestly affected by the Fed’s action on short-term rates as long-term rates are used to measure long duration pension obligations.

Pension obligations (as measured by the projected benefit obligation or PBO) at the end of 2015 were further reduced for corrections to life expectancy (or more pessimistically – higher mortality) assumptions. While we are unable to collect specific detail regarding the reduction in PBO for this revision, a 1% to 2% decrease is the anecdotal evidence recited by employers and actuaries. Additional changes in life expectancy assumptions may be published in the fourth quarter of 2016.

This is the second straight month of funded status gains... but we're far from celebrating.

The two most adverse effects on the funded ratio were the result of 2015 capital market experience and lower-than-expected employer contributions:

  1. The actual return on the pension trusts was an anemic 0.9% when the expectation was 7.2%, which created a shortfall in the reduction of the deficit of almost $86 billion.
  2. Employers reduced 2015 cash contributions by almost $9 billion compared to 2014. Approximately $31 billion was contributed in 2015, compared to approximately $40 billion in 2014; a probable cause is the continuation of funding relief in the Bipartisan Budget Act of 2015.

An Optimistic Forecast

Looking forward, under an optimistic forecast with rising interest rates (reaching 3.71% by the end of 2016 and 4.31% by the end of 2017) and asset gains (11.2% annual returns), the funded ratio would climb to 79% by the end of 2016 and 90% by the end of 2017. Under a pessimistic forecast (3.51% discount rate at the end of 2016 and 2.91% by the end of 2017 and 3.2% annual returns), the funded ratio would decline to 76% by the end of 2016 and 69% by the end of 2017.

To view the complete Pension Funding Index, go here. To see the 2016 Milliman Pension Funding Study, go here. To receive regular updates of Milliman’s pension funding analysis, contact us at




About Milliman
Milliman is among the world’s largest providers of actuarial and related products and services. The firm has consulting practices in healthcare, property & casualty insurance, life insurance and financial services, and employee benefits. Founded in 1947, Milliman is an independent firm with offices in major cities around the globe. For further information, visit our website.
About the Milliman Pension Funding Study
For the past 16 years, Milliman has conducted an annual study of the 100 largest defined benefit pension plans sponsored by U.S. public companies. The results of the Milliman 2016 Pension Funding Study are based on the pension plan accounting information disclosed in the footnotes to the companies’ annual reports for the 2015 fiscal year and for previous fiscal years. These figures represent the GAAP accounting information that public companies are required to report under Financial Accounting Standards Board Accounting Standards Codification Subtopics 715-20, 715-30, and 715-60. In addition to providing the financial information on the funded status of their 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 from those for U.S. qualified pension plans. The information, data, and footnotes do not represent the funded status of the companies’ U.S. qualified pension plans under ERISA.