Funded status of 100 largest U.S. public pensions holds up reasonably well in the face of volatility and uncertainty, according to Milliman estimates

Milliman today released the results of its 2020 Public Pension Funding Study (PPFS), which analyzes funding levels of the nation’s 100 largest public pension plans, including an independent assessment on the expected real return of each plan’s investments.

For Milliman’s 2020 PPFS, the estimated aggregate funded ratio of the nation’s largest public pension plans is 70.7% as of June 30, 2020, down from 72.7% reported in our 2019 study. The aggregate Total Pension Liability reported at the last fiscal year-ends (for most plans, this is June 30, 2019) was $5.27 trillion, growing from $5.07 trillion as of the prior fiscal year-ends. And between the 2019 and 2020 PPFS, over one quarter of the plans (28) lowered their interest rate assumptions, with 90 of the plans now reporting assumptions of 7.50% or below.

While the impact of the COVID-19 pandemic on public pensions’ financials is not fully clear, plans in this year’s PPFS experienced a huge swing in the estimated combined investment return, from -10.81% in Q1 2020 to 10.72% in Q2. More concrete evidence of the pandemic’s impact will be available once next year’s financial statements are published.

Beyond market volatility, which has affected plan assets, we expect that furloughs and shutdowns as a result of the COVID-19 pandemic will impact pay levels and employee contribution amounts, while pressure on government budgets will make it hard to free up dollars to contribute to the plans to shore up their funding. But public plans have, by and large, shown great resiliency. They are designed and financed to function over a very long time horizon, and can take short-term setbacks in stride.

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

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

Multinational employers face retirement plan funding challenges amid COVID-19

Defined benefit plan sponsors face a squeeze on funding status from two directions. For one, ongoing and renewed COVID-19 lockdowns worldwide will potentially reduce the value of investments of pension fund assets as stock markets could decline as a result of closed businesses. Second, pension funds aren’t keeping pace with contributions as workers are furloughed and contributions are reduced or delayed. Correspondingly, members of defined contribution plans face similar shortfalls in the funding of their own pension pots. 

While multinational companies face the key question of how far they should go towards helping employees financially, governments worldwide have instituted various programs or measures to provide short-term relief. In this article, Milliman’s Danny Quant provides a global roundup of these measures in various countries. 

Estimated cost of retiree pension risk transfer as low as 100.3% in October, under competitive pricing rate

Milliman today announced the latest results of its Milliman Pension Buyout Index (MPBI). As the Pension Risk Transfer (PRT) market continues to grow, it has become increasingly important to monitor the annuity market for plan sponsors that are considering transferring retiree pension obligations to an insurer. While we continue to analyze annuity purchase rates from all insurers, Milliman has also expanded its research to reflect the impact of competitive pricing on estimated buyout cost.

During October, the average estimated cost to transfer retiree pension risk to an insurer increased by 60 basis points, from 102.3% of a plan’s total liabilities to 102.9% of those liabilities. This means the average estimated retiree PRT cost for the month is now 2.9% more than those plans’ retiree accumulated benefit obligation (ABO). Annuity purchase costs reflecting competition amongst insurers are even lower, at 100.3%, up from 100.2% in September.

At just 100.3%, October’s competitive buyout pricing trends continue to offer an attractive de-risking strategy for some plans. Perhaps as a result, insurers have seen an uptick in pension risk transfer (PRT) activity in the third/fourth quarters of 2020, as plan sponsors complete transactions prior to year-end.

The MPBI uses the FTSE Above Median AA Curve, along with annuity purchase composite interest rates from eight insurers, to estimate the average and competitive costs of a PRT annuity de-risking strategy. Individual plan annuity buyouts can vary based on plan size, complexity, and competitive landscape.

To view the complete Milliman Pension Buyout Index, click here.  

Corporate pension funded status improves by $21 billion in October

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans.

In October, the funded status of these plans improved by $21 billion, primarily due to liability gains resulting from an increase in the benchmark corporate bond interest rates used to value those liabilities. The monthly discount rate rose 14 basis points for the month, from 2.57% to 2.71%. As a result, the PFI deficit declined to $285 billion, the lowest it’s been since March 2020. At the same time, October’s investment loss of 0.93% resulted in a $20 billion decrease to the market value of assets. The funded ratio for the Milliman 100 PFI rose slightly, from 84.4% at the end of September to 85.1% as of October 31.

All eyes are on the presidential election this month, and what the results might mean for interest rates and investment returns going into year-end. As discount rates tick back up for the third consecutive month, executives should be paying close attention to market movements coming out of this election cycle.

Looking forward, under an optimistic forecast with rising interest rates (reaching 2.81% by the end of 2020 and 3.41% by the end of 2021) and asset gains (10.5% annual returns), the funded ratio would climb to 87% by the end of 2020 and 103% by the end of 2021.  Under a pessimistic forecast (2.61% discount rate by the end of 2020 and 2.01% by the end of 2021 and 2.5% annual returns), the funded ratio would decline to 84% by the end of 2020 and 77% by the end of 2021.

To view the complete Pension Funding Index, click here. To see the 2020 Milliman Pension Funding Study, click here.

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

Milliman expands Pension Buyout Index to include competitive pricing rate, which drops to 100.2% in September

Milliman today announced the latest results of its Milliman Pension Buyout Index (MPBI). As the Pension Risk Transfer (PRT) market continues to grow, it has become increasingly important to monitor the annuity market for plan sponsors that are considering transferring retiree pension obligations to an insurer. While we continue to analyze annuity purchase rates from all insurers, starting this month Milliman has expanded its research to reflect the impact of competitive pricing on estimated buyout cost, and added two new insurers to our index: Massachusetts Mutual Life Insurance Company (MassMutual), and Banner Life Insurance Company (Legal & General America).

During September, the average estimated cost to transfer retiree pension risk to an insurer decreased by 60 basis points, from 102.9% of a plan’s total liabilities to 102.3% of those liabilities. This means the average estimated retiree PRT cost for the month is now 2.3% more than those plans’ retiree accumulated benefit obligation (ABO). Annuity purchase costs reflecting competition amongst insurers are even lower at 100.2% (down from 101.0% in August).

At just 100.2%, September’s low competitive buyout rate indicates that some plans may have been able to transfer pension risk at a cost that is only a fraction higher than the plan’s accounting liability. Similarly, September’s average buyout rate, at 102.3%, is the lowest we’ve seen since launching Milliman’s Pension Buyout Index.

The MPBI uses the FTSE Above Median AA Curve, along with annuity purchase composite interest rates from eight insurers, to estimate the average and competitive costs of a PRT annuity de-risking strategy. Individual plan annuity buyouts can vary based on plan size, complexity, and competitive landscape.

To view the complete Milliman Pension Buyout Index, click here.

Women sandwiched between working and caregiving face health and financial challenges

Women often provide care for both children and elderly parents and understand the physical and fiscal effects of being a caregiver. This demographic is known as the “Sandwich Generation” because they must balance work with unpaid caregiving responsibilities. 

Being in the Sandwich Generation contributes to stress, depression, exhaustion, and financial hardship for caregivers. Many of the challenges women face include helping parents with long-term care and costs, determining money needed for retirement, figuring out healthcare expenses in retirement, paying for children’s education, and determining how to handle disability should working become an issue. 

In this paper, Milliman’s Janet JenningsSheila Jelinek, and Suzanne Norman explain how multigenerational care affects women’s health costs. They also discuss how women can become more aware of resources and solutions that will help them and their loved ones improve their financial security.