Tag Archives: Charles Clark

Corporate pensions’ funded ratio rises to 91.6% despite investment losses in April

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 30th, 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.

Corporate pension contributions reach record level in 2017, funding status improved to 86.0%

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.

Corporate pensions’ investment losses in February buoyed by higher discount rates

Milliman has released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. Despite the market volatility in February, these pensions experienced a $13 billion improvement in funded status thanks to an increase in the corporate bond rates used to measure pension liabilities. While the market value of assets for these pensions lost $32 billion in February, plan liabilities also shrunk, narrowing the deficit from $219 billion at the end of January to $206 billion as of February 28. The funded ratio for the Milliman 100 PFI rose from 87.3% to 87.7% during the same time period.

Despite the recent market volatility, February’s 21 basis point discount rate increase buoyed pension funding this month. In fact, thanks to strong investment performance in January along with an increase in discount rates in both January and February, overall pension funding for these plans has risen $75 billion over the past two months—not a bad way to start 2018.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.45% by the end of 2018 and 5.05% by the end of 2019) and asset gains (11.0% annual returns), the funded ratio would climb to 99% by the end of 2018 and 114% by the end of 2019. Under a pessimistic forecast (3.45% discount rate at the end of 2018 and 2.85% by the end of 2019 and 3.0% annual returns), the funded ratio would decline to 82% by the end of 2018 and 75% 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.

Corporate pensions’ $61 billion funded status gain in January may cushion early February market slide

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. While market movement in February may dampen January’s gains, during the first month of 2018 corporate pensions experienced their largest funded status improvements in over a year.

According to Milliman’s analysis, these plans experienced a funding status increase of $61 billion in January, and saw their funded ratio rise from 84.1% at the end of December to 87.2% as of January 31. The improvement is the result of investment gains due to strong market performance and a reduction in liabilities (which was due to an increase in the benchmark corporate bond interest rates used to value pension liabilities).

January’s stellar funding gains may help to cushion the effect of the current market slide witnessed in February thus far for these pensions. It will be interesting to see if the recent volatility paired with U.S. tax reform changes incentivize plan sponsors to pursue funding and de-risking strategies more aggressively than they have in the past.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.29% by the end of 2018 and 4.89% by the end of 2019) and asset gains (11.0% 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 (3.19% discount rate at the end of 2018 and 2.59% by the end of 2019 and 3.0% annual returns), the funded ratio would decline to 81% by the end of 2018 and 74% 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.

Corporate pensions experience stellar investment returns alongside sinking discount rates in 2017

Milliman today released the year-end results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. During 2017, despite superb investment gains, these pensions experienced an overall $2 billion decrease in funded status due to a decline in the corporate bond rates used to measure pension liabilities. In December, the Milliman 100 PFI discount rate fell 46 basis points to 3.53%, marking the lowest year-end discount rate and fifth-lowest monthly discount rate in the PFI’s 17-year history.

In contrast to declining discount rates, assets outperformed expectations in 2017 with a cumulative investment gain of 11.47% (by comparison, the 2017 Pension Funding Study reported a 7.0% annualized expected rate of return). The 2017 funding ratio for the Milliman PFI plans ticked up from 83.3% at the end of 2016 to 84.1% as of December 31, 2017—despite the overall $2 billion decrease in funded status.

There are a few items on the radar for corporate pensions in 2018. We expect pension expenses to decrease by around $2.6 billion, thanks to last year’s stellar investment experience. And with the passage of tax reform, plan sponsors may decide to take a closer look at accelerating contributions with an eye toward further de-risking efforts.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.13% by the end of 2018 and 4.73% by the end of 2019) and asset gains (11.0% annual returns), the funded ratio would climb to 97% by the end of 2018 and 112% by the end of 2019. Under a pessimistic forecast (2.93% discount rate at the end of 2018 and 2.33% by the end of 2019 and 3.0% annual returns), the funded ratio would decline to 77% by the end of 2018 and 71% 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.

Corporate pension funding up $7 billion in November, $41 billion in past three months

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In November, these pensions experienced a $7 billion improvement, increasing for the third month in a row and bringing the total funded status gain to $41 billion since August 31. This three-month run marks the strongest performing period of 2017.

November’s improvement was the result of robust 0.82% investment gains and pension plan liabilities that remained stagnant as the corporate bond interest rate used to value those liabilities was flat for the month. The funded ratio for the Milliman 100 plans ticked up 0.4% to 85.2% as of November 30.

Barring a calamity in the next month, 2017 has been a stellar year with strong double-digit investment returns for corporate pensions. If discount rates can hold and December investment returns mirror the past 11 months, the funded ratio for these plans will end higher than it was in 2016. Should discount rates end the year with a strong uptick, this will result in more funding optimism as we turn the corner into the new year.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.32% by the end of 2018 and 4.92% by the end of 2019) and asset gains (11.0% 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 (3.02% discount rate at the end of 2018 and 2.42% by the end of 2019 and 3.0% annual returns), the funded ratio would decline to 78% by the end of 2018 and 71% by the end of 2019.

To view the complete Pension Funding Index, click here. To see the 2017 Milliman Pension Funding Study, click here.

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