July’s corporate pension funding ratio reaches 93.4%, highest in a decade

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In July, these pensions experienced a $12 billion increase in funded status due to robust investment returns of 1.15% for the month. Assets increased by $13 billion in July, with the PFI deficit falling from $120 billion to $108 billion, while pension liabilities increased by $1 billion due to a slight dip in the benchmark corporate bond interest rates used to value pension liabilities. The funded ratio climbed from 92.7% at the end of June to 93.4% as of July 31, the highest it’s been in a decade.

Corporate pension funding ratios are back at percentages we saw pre-global financial crisis, though ten years ago discount rates were almost double what they are today. In fact, July’s strong investment returns would have had an even more pronounced impact on these plans, except for the fact that a majority of the Milliman 100 companies have heavy fixed income concentrations.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.36% by the end of 2018 and 4.96% by the end of 2019) and asset gains (10.8% annual returns), the funded ratio would climb to 99% by the end of 2018 and 115% by the end of 2019. Under a pessimistic forecast (3.86% discount rate at the end of 2018 and 3.26% by the end of 2019 and 2.8% annual returns), the funded ratio would decline to 91% by the end of 2018 and 84% by the end of 2019.

To view the complete Pension Funding Index, click here. To receive regular updates of Milliman’s pension funding analysis, contact us here.

Milliman FRM Market Commentary: July 2018

Stocks hit the ground running to start the second half of 2018. In this month’s commentary, Milliman’s Joe Becker addresses the following:

• All three major segments of the global equity market pushed higher in July amidst cooling trade war rhetoric, rising global interest rates and reports of strong economic growth.
• With its fourth consecutive positive monthly return and its best since January, the S&P 500 increased its YTD return to 6.5%.
• Small-cap stocks continued their winning streak with their fifth consecutive month of positive returns, during which they’ve risen 14.5%.
• After touching a YTD low in late June, EM equities reversed course in July, benefiting from a reprieve in the US dollar’s ascent and climbing 2.5%, their first positive monthly return in six months.
• The relatively low equity market volatility in June extended into July as positive news outweighed the negative, pushing stock prices gradually higher.
• After declining in June, the correlation of the S&P 500 to global ex-US equities increased steadily higher during July, while its correlation to the U.S. aggregate bond market, after rising and falling remained largely unchanged.

To learn more, download the full commentary at MRIC.com.

Milliman awards 16 Opportunity Scholarships in the program’s second year

Milliman is pleased to announce the recipients of this year’s Opportunity Scholarship program. This scholarship program, now in its second year, was created to assist students from ethnic groups and races that are under-represented in the fields of actuarial science, data science, computer science, economics, programming, mathematics, statistics, data analytics, or finance.

This year, the Opportunity Scholarship recipients include 16 students from colleges and universities across the United States, Australia, South Africa, and the United Kingdom who have demonstrated academic excellence and plan to pursue a career in actuarial science or related fields. Last year, which was the inaugural year of the scholarship, 12 scholarships were presented.

“Milliman is proud to assist students from diverse backgrounds in achieving their educational goals in fields like actuarial science, mathematics, computer science, and finance,” said Milliman Chief Executive Officer Steve White. “This year’s group of recipients comes from a wide array of backgrounds and has shown that they excel academically, with the drive and knowledge to succeed.”

Below is the list of this year’s Scholarship recipients:

1. Victor Asiwe, actuarial science, at University of Cape Town (South Africa)
2. Aleesha Chavez, computer science, at Northwest Nazarene University (Idaho)
3. Khethiwe Dlamini, actuarial science, at University of the Free State – Bloemfontein (South Africa)
4. Jordan Howell, actuarial science, at Kettering University (Michigan)
5. Jael Kerandi, finance, at University of Minnesota-Twin Cities
6. Rachael King, mathematics, at Macquarie University (Australia)
7. Adam Lathan, actuarial science and data analytics, at Drake University (Iowa)
8. Richard Machivenyika, actuarial science, at University of Cape Town
9. Mapule Madzena, computer science, at University of the Free State – Bloemfontein
10. Jennifer Mora-Amaya, actuarial science, at St. John’s University (New York)
11. Sonia Moreno, computer science, at Carleton College (Minnesota)
12. Sarah Peña, actuarial science, at UCLA
13. Bryce Santiago Badura, computer science, at University of Notre Dame (Indiana)
14. Ayomikun Vaughan, actuarial science, at Queen’s University of Belfast
15. Edwin Villavicencio, actuarial science, at North Central College (Illinois)
16. Mattie Zimmer, mathematics, at University of New Orleans

Five of this year’s recipients also received Opportunity Scholarships last year. Those repeat recipients are Khethiwe Dlamini, Jordan Howell, Sonia Moreno, Sarah Peña, and Ayomikun Vaughan.

Lackluster asset performance in Q2 drops public pension funding by $23 billion

Milliman has released the 2018 second quarter results of its Public Pension Funding Index (PPFI), which consists of the nation’s 100 largest public defined benefit pension plans. In Q2, these plans experienced a $23 billion loss in funding, largely due to a lackluster asset performance of 0.70% in aggregate. The plans earned approximately $45 billion for the quarter, below assumed investment returns reflected in liability calculations. This shortfall is exacerbated by $28 billion flowing out of the plans, as benefits paid out exceeded contributions coming in from employers and plan members. The PPFI funding ratio dipped slightly from 71.4% in Q1 2018 to 71.2% in Q2.

Without the strong investment performance we saw in 2017, it’s difficult for these public pensions to gain ground. If a plan’s benefits paid out exceed contributions coming in, reliance on the market is even more crucial to buttress funding.

As of June 30, 2018, the PPFI deficit stands at $1.448 trillion, the largest since the index began in September 2016. The total pension liability (TPL) topped the $5 trillion mark for the first time in Q2, at an estimated $5.025 trillion at the end of the quarter, up from $4.985 trillion at the end of Q1. Funded ratios did not move much this quarter, with one more plan dropping below the 90% funded mark; there are now just 14 plans above this mark, 26 plans whose funded ratios fall below 60%, and 11 plans remain below 40% funded.

To view the Milliman 100 Public Pension Funding Index, click here.

To receive regular updates of Milliman’s pension funding analysis, contact us here.

Regulatory roundup

More retirement-related regulatory news for plan sponsors, including links to detailed information.

PBGC changes premium payment and correspondence mailing addresses
The Pension Benefit Guaranty Corporation (PBGC) has changed its mailing addresses for paper checks and correspondence from Bank of America to U.S. Bank. If a paper check or correspondence is mailed to Bank of America, it will be forwarded to U.S. Bank until October 30, 2018. Complete premium payment instructions can be found at the PBGC website.

To learn more, click here.

IRS updates 403(b) checklist
The Internal Revenue Service has updated its 403(b) checklist for July 2018. Every year it’s important that retirement plan sponsors review the requirements for operating a 403(b) retirement plan. The updated checklist will help sponsors keep their plan in compliance with many of the important rules.

To access the 403(b) checklist, click here.

Designing a pension plan de-risking strategy

Milliman consultants helped one client prepare a strategic and practical strategy to de-risk their defined benefit (DB) pension plan. The consultants began discussions by explaining how the path to de-risking included a wide spectrum of options ranging from risk retention via modified plan design to third party risk transfer. The advantages and disadvantages including costs associated with several de-risking options were also discussed. The client’s decision would depend on their risk tolerance and willingness to incur additional short-term costs. Milliman’s Zorast Wadia explains how the firm helped the client meet their overall business objective in his case study “De-risking: Options available to reduce your pension plan footprint.”