Milliman Analysis: Corporate Pension Funding Rises by $11B in October

Staff Report

Friday, November 8th, 2019

Milliman, Inc., a premier global consulting and actuarial firm, released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. During October, the funded ratio for these plans rose slightly, from 85.4% to 86.1%, while the funded status deficit improved by $11 billion.

An investment gain of 1.08% helped boost the funded status of the Milliman PFI in October, with the market value of assets improving by $13 billion for these plans. Liabilities for these plans increased by $2 billion as a result of a one basis point drop in the discount rate, from 3.09% at the end of September to 3.08% as of October 31. October's month-end discount rate ranks as the second lowest discount rate recorded in the 19-year history of the Milliman 100 PFI.

"Over the past twelve months the pension funded ratio has sharply fallen, thanks to the record low interest rate environment," said Zorast Wadia, co-author of the Milliman 100 PFI. "However, low interest rates also make borrowing strategies viable if plan sponsors have access to cash. Plan sponsors may want to explore options that take advantage of low rates as one way to fund up their plans."

Looking forward, under an optimistic forecast with rising interest rates (reaching 3.18% by the end of 2019 and 3.78% by the end of 2020) and asset gains (10.6% annual returns), the funded ratio would climb to 88% by the end of 2019 and 103% by the end of 2020.  Under a pessimistic forecast (2.98% discount rate at the end of 2019 and 2.38% by the end of 2020 and 2.6% annual returns), the funded ratio would decline to 85% by the end of 2019 and 78% by the end of 2020.