US Corporate Pensions Rebound to Fully Funded Status

The 100 largest corporate DB plans in the U.S. saw their collective funded ratio rise to 100.7% in May.

The funded ratio for the 100 largest U.S. corporate pension plans rose to 100.7% in May from 99.6% at the end of April, despite an average investment loss of 1.5% during the month, according to consulting and actuarial firm Milliman’s Pension Funding Index.

The increase was attributed to a 27-basis-point rise in the discount rate, the benchmark corporate bond interest rate used to value pension liabilities. The discount rate rose to 5.19% from 4.92% during the month.

“Back in April, the plans shifted from surplus to deficit, but in May they did the opposite, once again rising above the fully funded mark,” Zorast Wadia, a Milliman principal and the author of the PFI, said in a release. “Continued fluctuations in discount rate activity are behind this funded status oscillation.”

Despite a monthly investment loss of 1.49%, the rise in the discount rate caused the projected benefit obligation of the pensions in the index to fall $41 billion during the month to $1.320 trillion. Because of the investment loss, the total market value of plans’ assets also fell, by $26 billion to $1.329 trillion as of May 31.

Over the 12 months from June 1, 2022, to May 30 this year, the cumulative asset performance of plans in the Milliman 100 PFI has been a loss of 1.56%, causing their funded status position to drop by $45 billion. The discount rates experienced a net increase of 85 bps to 5.19% from 4.34% one year earlier. However, due to the investment losses, the funded ratio of the Milliman 100 companies dropped to 100.7% over the past 12 months from 103.7%.

Milliman projected that an optimistic forecast in which interest rates rise to 5.54% by the end of 2023 and 6.14% by the end of 2024, with annual asset returns of 9.8%, would see the funded ratio of the plans in the index climb to 108% by the end of 2023 and 121% by the end of 2024.

However, a pessimistic forecast in which the discount rate falls to 4.84% at the end of this year and 4.24% at the end of next year, with annual investment returns of 1.8%, would result in the 100 plans’ aggregate funded ratio declining to 95% by the end of 2023 and 87% by the end of 2024.


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