Funding for the 100 largest US corporate pension plans, as tracked by the Milliman 100 Pension Funding Index, improved by $67 billion in February as the plans’ aggregate funded ratio rose to 92.9% from 89.7%, thanks to a 26 basis point increase in the monthly discount rate. It was the fifth straight month funded ratios have improved.
A paltry investment gain of 0.13% during the month led to a $2 billion decline in the aggregate market value of plans to $1.733 trillion as of Feb. 28, while pension liabilities decreased to $1.866 trillion at the end of February from $1.935 trillion at the end of January.
During the 12 month-period between March 2020 and February 2021, the cumulative asset return for the plans was 11.82%, which helped the funded status deficit of the plans improve by $197 billion. Meanwhile, the funded ratio of the plans rose sharply during the same time period to 92.9% from 83%.
“The funded ratio for corporate pensions has climbed by nearly 10 percentage points over the past 12 months,” Zorast Wadia, author of the Milliman 100 PFI, said in a statement. “We’re finally seeing some good discount rate news for these plans, making up for the poor investment returns over the past two months.”
Milliman projects that if the 100 plans in its index were to earn the expected 6.5% median asset return, and if the current discount rate of 2.88% was maintained through 2022, the plans’ funded status would increase to 96.3% by the end of 2021, and 100.7% by the end of 2022. The forecast assumes 2021 and 2022 aggregate annual contributions of $50 billion.
Under an optimistic forecast that assumes the plans will earn average annual asset returns of 10.5%, with interest rates will rising to 3.38% by the end of 2021 and 3.98% by the end of 2022, Milliman forecasts the funded ratio would climb to 106% by the end of 2021 and 125% by the end of 2022. However, under a pessimistic forecast that assumes 2.5% annual returns with the discount rate falling to 2.38% at the end of 2021 and 1.78% by the end of 2022, the funded ratio would drop to 87% by the end of 2021 and 80% by the end of 2022.