Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In May, these pensions experienced a $2 billion dip in funded status as investment gains mostly offset a four-point decrease in the monthly discount rate. The funded ratio for the Milliman 100 PFI remains unchanged at 91.6% as of May 31.
Sometimes no news is good news for corporate pensions. May’s 0.73% investment gain exceeded monthly expectations, and helped balance out the month’s modest decrease in corporate bond rates.
From April 30, 2018 through May 31st, Milliman 100 PFI plans experienced a $7 billion increase in asset values, while the projected benefit obligations (PBO) rose by $9 billion. As a result, the deficit increased from $139 billion to $141 billion for the month. Over the last year (June 2017 – May 2018), the Milliman 100 PFI funded status deficit has improved by $116 billion.
Looking forward, under an optimistic forecast with rising interest rates (reaching 4.34% by the end of 2018 and 5.03% by the end of 2019) and asset gains (10.8% annual returns), the funded ratio would climb to 100% by the end of 2018 and 116% by the end of 2019. Under a pessimistic forecast (3.64% discount rate at the end of 2018 and 3.03% by the end of 2019 and 2.8% annual returns), the funded ratio would decline to 87% by the end of 2018 and 81% 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 today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In April, these pensions experienced a $20 billion improvement in funded status thanks to an increase in the corporate bond rates used to measure pension liabilities. From March 31, 2018, through April 30, the monthly discount rate increased 12 basis points, from 3.91% to 4.03%; as a result, pension liabilities decreased by $26 billion for the month. The funded ratio for the PFI plans increased from 90.6% to 91.6%, despite a 0.11% investment loss that reduced index assets by $6 billion.
Corporate pensions continue to get some discount rate relief in 2018, despite volatile equity markets. Over the past 12 months, with the rise in rates and a 6.17% cumulative asset gain for these plans, we’ve seen the funded ratio climb from 85.5% to 91.6%.
Looking forward, under an optimistic forecast with rising interest rates (reaching 4.43% by the end of 2018 and 5.03% by the end of 2019) and asset gains (10.8% annual returns), the funded ratio would climb to 101% by the end of 2018 and 117% by the end of 2019. Under a pessimistic forecast (3.63% discount rate at the end of 2018 and 3.03% by the end of 2019 and 2.8% annual returns), the funded ratio would decline to 87% by the end of 2018 and 81% by the end of 2019.
To view the complete Pension Funding Index, click here. This May PFI publication reflects the annual update of the Milliman 100 companies and their latest financial disclosures. To see the 2018 Milliman Pension Funding Study, click here. To receive regular updates of Milliman’s pension funding analysis, contact us here.
In defined benefit (DB) plan administration, errors can occur in following the provisions of the plan document, applying regulatory guidelines, or processing plan data. DB plan administration errors, or failures, can have serious consequences, including disqualification. Fortunately, the Internal Revenue Service has established programs for correcting errors in a relatively easy manner.
Failure to administer a plan in accordance with the plan document and applicable regulations can result in severe tax consequences. If a plan is disqualified, the plan’s trust loses its tax-exempt status and this affects the plan sponsor’s ability to deduct plan contributions. Additionally, contributions are subject to Social Security, Medicare, and federal unemployment taxes and trust earnings are subject to income tax. Plan distributions are no longer eligible for rollover to another eligible retirement plan or IRA.
In order to correct plan failures completely, you must start with a plan. In this article, Milliman’s Mary Hart discusses several ways to correct plan errors.
Milliman has released the 2018 first quarter results of its Public Pension Funding Index (PPFI), which consists of the nation’s 100 largest public defined benefit pension plans. In Q1, these plans experienced a $93 billion loss in funding, largely resulting from volatile equity markets that produced an aggregate -0.75% investment return for these plans. In comparison, the PPFI investment return for 2017 Q4 was 3.24%. From January 1, 2018, to March 31, 2018, the PPFI pensions saw their funded status drop from 73.1% to 71.4%.
After more than a year of running smoothly, the market stubbed its toe in Q1. As a result, much of last year’s robust pension funding gains were washed away in early 2018.
No plans in our index seem to have made it through the first quarter of 2018 unscathed, with estimated returns ranging from a low of -1.91% to a high of -0.03%; the Milliman 100 PPFI deficit grew from $1.332 trillion to $1.425 trillion during Q1. The losses resulted in six plans dropping below the 90% funded mark, with 15 plans now over 90% funded, down from 21 as of 2017 Q4. At the other end of the spectrum, 26 of the 100 plans now have funded ratios below 60%, with 10 plans that 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.
Milliman today released the results of its Spring 2018 Multiemployer Pension Funding Study (MPFS), which analyzes the funded status of all multiemployer pension plans in the United States. As of December 31, 2017, the plans achieved an aggregate funded ratio of 83%, the highest since the market collapse in 2008; a decade ago, the aggregate funded ratio of all multiemployer plans stood at 85%.
While increases in plan contributions and reductions in benefits factored into these plans’ funding improvement, stellar investment returns were the primary driver of gains for the MPFS plans. The estimated 2017 calendar year investment return for our simplified portfolio was nearly 16%—more than double the assumption of most plans. Critical plans, however, were unable to capitalize on the sturdy investment returns due to the cash flow demands that hit less healthy plans.
While healthier plans benefited from better than assumed investment earnings, critical plans are sinking in quicksand and not able to benefit enough from strong investment returns. It’s been almost 10 years since the global financial crisis, and while healthier plans have gotten their funded status levels back to where they were then, critical plans have not.
Healthy plans have a funded ratio of 93%, compared with 90% a decade ago. Critical plans’ aggregate funded ratio as of year-end is mired at 60%, compared to 76% in 2008. A closer look at critical plans in the “red” or “deep red” zones show the contributions of mature plans (those with fewer active participants) are relatively small compared to the size of the plan’s assets and liabilities. The shortfall for red zone and deep red zone plans is expected to grow unless these plans experience superior asset returns, increased contributions, and/or benefit reductions.
To view the complete study, click here.
Also, to receive regular updates of Milliman’s pension funding analysis, contact us here.
Milliman today released the results of its 2018 Corporate Pension Funding Study (PFS), which analyzes the 100 largest U.S. corporate pension plans. Overall, this year’s study found that in 2017 corporate pension contributions hit $62 billion, tying the amount contributed in 2012 for the highest contributions since the inception of the PFS. Seventeen employers contributed at least $1 billion to their plans, with seven of them contributing more than $2 billion.
There were incentives to increase contributions in 2017. Additional contributions can both reduce the Pension Benefit Guaranty Corporation (PBGC) premiums paid by these plans, and allow them to leverage higher tax deductions in light of tax reform enacted at the end of 2017. It’s a trend that’s likely to flourish in 2018, as plan sponsors with calendar year plans can continue to leverage those higher 2017 tax deductions with contributions made prior to September 15 of this year.
The funded ratio for the Milliman 100 plans rose from 81.1% in 2016 to 86.0% in 2017, an increase due largely to strong investment returns coupled with a modest decline in life expectancy assumptions, and the higher level of plan contributions as noted above. Funding ratios for plans ranged from a low of 62.4% for American Airlines to a high of 155.0% for NextEra Energy, Inc.
Other key highlights from the 2018 study include:
Analysis of asset gains. Strong investment returns added $175 billion to the Milliman 100 plans, with a 12.7% rate of return (compared to an expected investment return of 6.8%). Pension assets for the Milliman 100 plans increased to an all-time high of $1.55 trillion.
Analysis of discount rate and pension liabilities. The median discount rate as of year-end 2017 declined to 3.60%, down 37 basis points from 3.97% the year before. Pension liabilities for the Milliman 100 plans increased to an all-time high of $1.80 trillion.
Pension Risk Transfer (PRT) market matures. The 2017 PRT activity for the Milliman 100 plans was slightly smaller than in 2016, with an estimated $12.7 billion in reported dollar volume.
To view the complete Pension Funding Study, click here. To receive regular updates of Milliman’s pension funding analysis, contact us here.