Milliman FRM Insight: April 2019 Market Commentary

April marked the best risk-adjusted monthly return for global equities since October 2015. Up for its fourth consecutive month, the global equity market, as measured by the S&P Global 1200, locked in its best YTD-through-April return on record. Equity market volatility in April declined sharply from average levels in March down to near their five-year low. Tightening credit spreads were offset by rising yields in April, leaving the investment grade bond market flat for the month. The price of oil climbed 6.8%, marking its fourth consecutive month of increases and bringing its YTD increase to 35%.

Milliman’s Joe Becker offers more perspective in this month’s market commentary. Download the full commentary at

IRS expands Self-Correction Program for retirement plans

The Internal Revenue Service (IRS) has expanded the Self-Correction Program (SCP) to enable retirement plan sponsors to more easily fix certain common plan document and operational failures, effective beginning April 19, 2019. Revenue Procedure 2019-19 updates the Employee Plans Compliance Resolution System (EPCRS), which covers the SCP and the Voluntary Correction Program (VCP) and Audit Closing Agreement Program (Audit CAP). The expanded SCP permits: self-correction options for specified participant loan failures and possible deemed distribution relief under Internal Revenue Code (IRC) section 72(p); self-correction of certain plan document failures; and additional self-correction opportunities for certain operational failures by a retroactive plan amendment. This Client Action Bulletin provides some more perspective.

Preparing for a pension plan termination

The prevalence of defined benefit (DB) plans has been declining for decades in favor of defined contribution (DC) plans, where employers can define their cost with much less volatility. According to the Bureau of Labor Statistics, among private industry workers, 51% have only a DC plan while 32% have no retirement plan.

Within these numbers, private sector DB plans, a $3 trillion market, are at different stages in their lifecycles. As of March 1, 2017, 63% of employees in pension plans were in active plans, 25% were in “soft-freeze” plans, and 12% were in frozen plans. For plan sponsors that have resolved to terminate their plans, they typically turn their attention to two important factors: financial readiness and operational readiness. When interest rates rise, the best-prepared plan sponsors are those that are both financially and operationally ready.

In this article, Milliman’s William Strange explains more about what actions plans can take when they are getting ready to terminate.

Funding for corporate pensions improves by $29 billion 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 $29 billion increase in funded status thanks to healthy investment gains and an increase in the benchmark corporate bond interest rates used to value pension liabilities. The market value of assets rose by $13 billion thanks to April’s robust investment gain of 1.09%. Discount rates also climbed in April, increasing seven basis points from 3.78% at the end of March to 3.85% as of April 30. Pension liabilities dropped by $16 billion as a result. The funding ratio of the Milliman 100 PFI during April rose from 89.7% to 91.4%.

April was a solid month for corporate pensions, with strong investment returns and a discount rate increase that helped to boost funding levels. Overall 2019 is starting out quite well, with above-expected asset returns in each of the first four months of the year. Discount rates making their way north of 4.0% again would further add to the optimism around pension funding.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.25% by the end of 2019 and 4.85% by the end of 2020) and asset gains (10.6% annual returns), the funded ratio would climb to 101% by the end of 2019 and 117% by the end of 2020.  Under a pessimistic forecast (3.45% discount rate at the end of 2019 and 2.85% by the end of 2020 and 2.6% annual returns), the funded ratio would decline to 87% by the end of 2019 and 80% by the end of 2020.

To view the complete Pension Funding Index, click here. To see the 2019 Milliman Pension Funding Study, click here.

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

Spot rate considerations for audits and lump-sum payouts

Pension plan sponsors are increasingly using the spot rate method to develop pension costs. Detailed attention is required when the method is applied to plans making lump-sum payments. At issue is a requirement by some auditors to use a certain approach and technique in application of the spot rate method for pension plans offering lump sums. In this article, Milliman’s Aeron Riordon explores its emerging usage as well as auditors’ preferred method considerations.

What does corporate pension funding look like by sector? (Infographic)

Milliman recently released the 19th edition of its Corporate Pension Funding Study, which analyzes funding information for the 100 largest U.S. corporate pension plans. New this year, the study also includes an analysis of pension plan funding by business sector including funded ratio, asset allocation, and expected investment returns.