Milliman Analysis: Corporate Pension Funding Rises by $15B in November

Staff Report

Friday, December 6th, 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 November, the funded ratio for these plans rose slightly, from 86.1% to 86.8%, while the funded status deficit improved by $15 billion.

An investment gain of 0.93% helped boost the funded status of the Milliman PFI in November, with the market value of assets improving by $11 billion for these plans. This is the second month in a row investment returns for the PFI plans have exceeded expectations while discount rates have remained nearly flat. November's one-basis point change in the monthly discount rate, from 3.08% at the end of October to 3.09% as of November 30, resulted in the PFI projected benefit obligation (PBO) decreasing by $4 billion. November's discount rate continues to rank among the lowest rates ever recorded in the 19-year history of the Milliman PFI.

"Market performance in 2019 has been better than expected for corporate pensions, helping counteract the effect of the low discount rate environment on funding," said Zorast Wadia, lead author of the Milliman 100 PFI. "But let's hope history doesn't repeat itself this December, as a market correction like we saw in 2018 combined with low discount rates could be disastrous for corporate pensions."

Looking forward, under an optimistic forecast with rising interest rates (reaching 3.74% by the end of 2020 and 4.34% by the end of 2021) and asset gains (10.6% annual returns), the funded ratio would climb to 103% by the end of 2020 and 120% by the end of 2021.  Under a pessimistic forecast (2.44% discount rate at the end of 2020 and 1.84% by the end of 2021 and 2.6% annual returns), the funded ratio would decline to 80% by the end of 2020 and 73% by the end of 2021.