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Milliman Hangout: Pension Funding Index, August 2015

August 11th, 2015 No comments

The funded status of the 100 largest corporate defined benefit pension plans worsened by $16 billion during July as measured by the Milliman 100 Pension Funding Index (PFI). The deficit rose to $261 billion primarily due to a decrease in the benchmark corporate bond interest rates used to value pension liabilities. Pension asset gains during July helped to dampen the funded status decrease. The funded ratio declined from 85.5% to 84.8%. This breaks the upward momentum from the second quarter of 2015 where the funded ratio had increased for three consecutive months.

PFI co-author Zorast Wadia discusses the index’s latest results on this Milliman Hangout.

Corporate pension funded status drops by $16 billion in July

August 6th, 2015 No comments

Milliman today released the results of its latest Pension Funding Index, which analyzes the 100 largest U.S. corporate pension plans. In July, these pension plans experienced a $16 billion decrease in funded status based on a $10 billion increase in asset values and a $26 billion increase in pension liabilities. The funded status for these pensions decreased from 85.5% to 84.8.

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We finally saw an interruption to the streak of improving pension funded status in July. Interest rates drove up pension liabilities last month, but fortunately the discount rate remained above four percent. Interest rates remain the big story this year, contributing to a $66 billion decrease in the pension benefit obligation.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.39% by the end of 2015 and 4.99% by the end of 2016) and asset gains (11.3% annual returns), the funded ratio would climb to 90% by the end of 2015 and 103% by the end of 2016. Under a pessimistic forecast (3.89% discount rate at the end of 2015 and 3.29% by the end of 2016 and 3.3% annual returns), the funded ratio would decline to 82% by the end of 2015 and 74% by the end of 2016.

Corporate pension funded status improves by $36 billion in June

July 9th, 2015 No comments

Milliman today released the results of its latest Pension Funding Index, which analyzes the 100 largest U.S. corporate pension plans. In June, these pension plans experienced a $36 billion increase in funded status based on a $28 billion decrease in asset values and a $64 billion decrease in pension liabilities. The funded status for these pensions increased from 84.1% to 85.6%.

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These pensions cleared an important hurdle this month, with the discount rate that determines pension liabilities climbing above 4% following a seven-month streak of flirting with all-time lows. It’s no coincidence that we’ve seen a related decrease in pension liabilities, with rising discount rates reducing liabilities by $92 billion year-to-date and contributing to a strong quarter for the 100 largest corporate pensions.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.55% by the end of 2015 and 5.15% by the end of 2016) and asset gains (11.3% annual returns), the funded ratio would climb to 92% by the end of 2015 and 105% by the end of 2016. Under a pessimistic forecast (3.95% discount rate at the end of 2015 and 3.35% by the end of 2016 and 3.3% annual returns), the funded ratio would decline to 82% by the end of 2015 and 74% by the end of 2016.

Pension funded status improves by $31 billion in May

June 4th, 2015 No comments

Milliman today released the results of its latest Pension Funding Index, which analyzes the 100 largest U.S. corporate pension plans. In May, these pension plans experienced a $31 billion increase in funded status based on a $3 billion decrease in asset values and a $34 billion decrease in pension liabilities. The funded status for these pensions increased from 82.6% to 84.1%.

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The second quarter of 2015 has reversed the losses we saw in the first quarter. For the year these pensions have now experienced a $50 billion decrease in the funded status deficit, thanks to rising interest rates. The discount rate that determines pension liabilities is now at 3.97%, and getting back above 4% would continue to push pension funding in the right direction.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.32% by the end of 2015 and 4.92% by the end of 2016) and asset gains (11.3% annual returns), the funded ratio would climb to 91% by the end of 2015 and 105% by the end of 2016. Under a pessimistic forecast with similar interest rate and asset movements (3.62% discount rate at the end of 2015 and 3.02% by the end of 2016 and 3.3% annual returns), the funded ratio would decline to 80% by the end of 2015 and 72% by the end of 2016.

Pension funded status improves by $40 billion in April

May 7th, 2015 No comments

Milliman today released the results of its latest Pension Funding Index, which analyzes the 100 largest U.S. corporate pension plans. In April, these pension plans experienced a $40 billion increase in funded status based on a $2 billion decrease in asset values and a $42 billion decrease in pension liabilities. The funded status for these pensions increased from 80.9% to 82.6%.

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Someone once said April is the cruelest month, but for these pensions last month it was less cruel than what happened over the course of the first quarter. We’re still a long ways away from full funded status, but the slight rise in interest rates at least moved things in the right direction to start the second quarter of 2015.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.22% by the end of 2015 and 4.82% by the end of 2016) and asset gains (11.3% annual returns), the funded ratio would climb to 91% by the end of 2015 and 105% by the end of 2016. Under a pessimistic forecast with similar interest rate and asset movements (3.42% discount rate at the end of 2015 and 2.82% by the end of 2016, with 3.3% annual returns), the funded ratio would decline to 78% by the end of 2015 and 70% by the end of 2016.

Pension funded status drops by $6 billion in March

April 23rd, 2015 No comments

Milliman today released the results of its latest Pension Funding Index, which analyzes the 100 largest U.S. corporate pension plans. In March, these pension plans experienced a $6 billion decrease in funded status based on decreases in asset values and increases in pension liabilities. This month’s analysis reflects the results of the 2015 Pension Funding Study, published on April 2nd.

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Last month these pensions continued to languish in the low-interest-rate doldrums. Whether or not rates climb between now and the end of the year will likely determine whether or not these pensions can meaningfully reduce the funded status deficit before year-end.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.10% by the end of 2015 and 4.70% by the end of 2016) and asset gains (11.3% annual returns), the funded ratio would climb to 90% by the end of 2015 and 104% by the end of 2016. Under a pessimistic forecast with similar interest rate and asset movements (3.20% discount rate at the end of 2015 and 2.6% by the end of 2016, with 3.3% annual returns), the funded ratio would decline to 75% by the end of 2015 and 68% by the end of 2016.

Funded status improves in February from rise in interest rates and investments

March 9th, 2015 No comments

Milliman today released the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest defined benefit pension plans. The funded status of the 100 largest corporate defined benefit pension plans increased by $80 billion during February, as measured by the Milliman 100 Pension Funding Index (PFI). After a $90 billion decrease in funded status in January, this month’s increase leaves these pensions’ funded status in approximately the same spot as they began the year.

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An increase in the corporate bond discount rates was a big driver of last month’s gains. But that needs to be put in perspective. January’s discount rate was the lowest in the history of our study, and February’s discount rate was the second-lowest. Discount rates continue to define pension funded status, and upward movement in those rates will be necessary to eliminate the funding deficit.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.13% by the end of 2015 and 4.73% by the end of 2016) and asset gains (11.4% annual returns), the funded ratio would climb to 94% by the end of 2015 and 107% by the end of 2016. Under a pessimistic forecast with similar interest rate and asset movements (3.13% discount rate at the end of 2015 and 2.53% by the end of 2016, with 3.4% annual returns), the funded ratio would decline to 77% by the end of 2015 and 70% by the end of 2016.

Milliman Hangout: Pension Funding Index, February 2015

February 11th, 2015 No comments

The funded status of the 100 largest corporate defined benefit pension plans dropped by $90 billion during January as measured by the Milliman 100 Pension Funding Index (PFI). The $90 billion funded status decline was the eighth largest monthly drop in the 15-year history of the Milliman 100 PFI. The funded status deficit ballooned from $292 billion to $382 billion since December 2014, which was due to a decline of 42 basis points in the benchmark corporate bond interest rates used to value pension liabilities. Pension assets had a monthly above-expected return that was due to strong fixed income asset return and this helped to counter liability losses. The funded ratio decreased from 83.5% to 79.6%.

PFI co-author Zorast Wadia discusses the index’s latest results on this Milliman Hangout.

Milliman 100 Pension Funding Index retreats to 79.6%

February 5th, 2015 No comments

Milliman today released the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest defined benefit pension plans. The funded status of the 100 largest corporate defined benefit pension plans dropped by $90 billion during January, as measured by the Milliman 100 Pension Funding Index (PFI). The $90 billion funded status decline was the 8th largest monthly drop in the 15-year history of the Milliman 100 PFI. The funded status deficit ballooned to $382 billion from $292 billion at the end of December 2014, which was due to the decline of 42 basis points in the benchmark corporate bond interest rates used to value pension liabilities.

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The projected benefit obligation (PBO), or pension liabilities, increased to $1.876 trillion from $1.775 trillion at the end of December 2014. The change resulted from a decrease of 42 basis points in the monthly discount rate to 3.38% for January from 3.80% for December 2014. January’s discount rate is the lowest in the history of the Milliman 100 PFI. The last time we observed a comparable discount rate change was in July 2012 when discount rates fell 40 basis points ending at 3.92%. January’s precipitous drop is even more impactful.

Looking forward, under an optimistic forecast with rising interest rates (reaching 3.93% by the end of 2015 and 4.53% by the end of 2016) and asset gains (11.4% annual returns), the funded ratio would climb to 91% by the end of 2015 and 104% by the end of 2016. Under a pessimistic forecast with similar interest rate and asset movements (2.83% discount rate at the end of 2015 and 2.23% by the end of 2016 and 3.4% annual returns), the funded ratio would decline to 73% by the end of 2015 and 66% by the end of 2016.

Milliman Hangout: Pension Funding Index, January 2015

January 13th, 2015 No comments

The funded status for the 100 largest corporate defined benefit plans decreased by $22 billion during December 2014, according to the Milliman 100 Pension Funding Index (PFI). Historically low interest rates were the dominant factor in the $105 billion deficit increase during 2014. While higher than expected investment returns produced a solid $81 billion gain, pension liabilities increased by $186 billion. The funded ratio was 83.6% as of December 31, 2014, down compared with the ratio on December 31, 2013, of 88.3%.

For more perspective on January’s PFI, watch our latest Milliman Hangout featuring coauthor Zorast Wadia.