Due to liability gains resulting from an increase in the benchmark corporate bond interest rates used to value those liabilitiesStudy by Milliman, Inc. analyzes the 100 largest U.S. corporate pension plans. View complete study here.
SEATTLE, Nov. 5, 2020 /PRNewswire/ — Milliman, Inc., a premier global consulting and actuarial firm, today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans.
In October, the funded status of these plans improved by $21 billion, primarily due to liability gains resulting from an increase in the benchmark corporate bond interest rates used to value those liabilities. The monthly discount rate rose 14 basis points for the month, from 2.57% to 2.71%. As a result, the PFI deficit declined to $285 billion, the lowest it’s been since March 2020. At the same time, October’s investment loss of 0.93% resulted in a $20 billion decrease to the market value of assets. The funded ratio for the Milliman 100 PFI rose slightly, from 84.4% at the end of September to 85.1% as of October 31.
Key Notes From The Study Show:
Despite a drop of 94 basis points in discount rates, the private single-employer defined benefit plans of the Milliman 100 companies continued to make funding progress in 2019 due to their stellar investment returns of 17.3%. The year-end 2019 funded ratio for the Milliman 100 companies settled at 87.5%, a slight improvement from the year-end 2018 funded ratio of 87.1%. Fourteen plans had a funded ratio of at least 100% compared to 16 plans from the 2019 Milliman PFS. However, due to a matching 11% growth in both assets and liabilities, the funding deficit grew by $17 billion, ending the year at $232 billion.
Contributions of $34.0 billion in 2019 were lower than expected, after two years of record high contributions ($59.5 billion in 2018 and $61.8 billion in 2017). Thirteen employers contributed at least $1 billion in 2019, similar to 2018. 2019’s largest contribution was by United Parcel Service, Inc. ($2.1 billion); compared to 2018 when six employers made larger contributions, the highest being AT&T’s $9.3 billion.
After a disappointing 2018 investment loss of 2.8%, the financial markets rebounded in 2019 permitting these pensions to post a 17.3% investment return. It was the second best year in the history of the study (exceeded only by the 19.5% return earned in 2003). The strong investment return in 2019 increased plan assets by $243 billion compared to the expectation that investments would only add $94 billion, based on the companies’ long-term investment return assumptions. The Milliman 100 plans’ assets increased to an all-time high of $1.62 trillion from $1.45 trillion.
“All eyes are on the presidential election this month, and what the results might mean for interest rates and investment returns going into year-end,” said Zorast Wadia, author of the Milliman 100 PFI. “As discount rates tick back up for the third consecutive month, executives should be paying close attention to market movements coming out of this election cycle.”
Looking forward, under an optimistic forecast with rising interest rates (reaching 2.81% by the end of 2020 and 3.41% by the end of 2021) and asset gains (10.5% annual returns), the funded ratio would climb to 87% by the end of 2020 and 103% by the end of 2021. Under a pessimistic forecast (2.61% discount rate by the end of 2020 and 2.01% by the end of 2021 and 2.5% annual returns), the funded ratio would decline to 84% by the end of 2020 and 77% by the end of 2021.
To view the complete Pension Funding Index, go to www.milliman.com/pfi. To see the 2020 Milliman Pension Funding Study, go to www.milliman.com/pfs. To receive regular updates of Milliman’s pension funding analysis, contact us at [email protected]
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 milliman.com.