Category Archives: Defined benefit

2016 survey of Indonesian employee benefit obligations

In this report, actuaries Halim Gunawan and Herry Kuswara analyze the employee benefit obligations of Indonesian companies. The authors focus on post-employment, termination, and other long-term employee benefits. The report aims to educate and create awareness about the state of employer-sponsored long-term employee benefit programs in Indonesia.

Five months of corporate pension funded status improvement ends with February’s $6 billion decline

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In February, after five months of steady improvement, these pension plans experienced a $6 billion decline in funded status primarily due to discount rates that plunged from 4.00% in January to 3.89% in February, an 11 basis point drop. The funded ratio for these pensions inched down from 81.6% to 81.5% over the same time period. Robust investment gains of 1.74% helped offset the funded status decline.

While February’s strong investment gains helped soften the blow dealt by the discount rate decline, all eyes are on interest rates right now. The Federal Reserve has signaled it will raise rates this month, which would be welcome news for pension plans.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.39% by the end of 2017 and 4.99% by the end of 2018) and asset gains (11.2% annual returns), the funded ratio would climb to 91% by the end of 2017 and 104% by the end of 2018. Under a pessimistic forecast (3.39% discount rate at the end of 2017 and 2.79% by the end of 2018 and 3.2% annual returns), the funded ratio would decline to 75% by the end of 2017 and 69% by the end of 2018.

Potential solutions for reducing PBGC premiums

Defined benefit (DB) plan sponsors continue to seek options to reduce their Pension Benefit Guaranty Corporation (PBGC) premiums, especially the variable rate premium. Milliman actuary Bret Linton highlights the following three solutions for plan sponsors to consider in his article “The challenge: Reducing PBGC variable rate premiums.”

1. Additional contributions, credited to the prior plan year.
2. Borrowing capital at a lower interest rate than the PBGC variable rate.
3. Splitting the pension plan into two plans: one with only actives and a second with the remaining retirees and terminated vested participants.

Actuarial solution results in larger opportunities

Milliman was recently retained by a multinational company to provide actuarial services for its retirement programs in six countries. This article by Danny Quant highlights how Milliman’s solution turned the initial valuation contract into broader consulting opportunities.

The year 2017 starts with corporate funded status improvement of $9 billion

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. The year 2017 opened optimistically, with the funded status for these pension plans improving by $9 billion due to January’s investment gain of 0.87% as well as a small rise in corporate bond rates used to value pension liabilities. As a result, the funded ratio for these plans climbed 0.5% to 81.6% from 81.1% in December 2016.

January marks the fifth straight month of funded status improvement, with discount rates once again returning to 4.0%—albeit barely. And with investment returns coming in above expectations, 2017 seems like it’s off to a positive start for pensions.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.55% by the end of 2017 and 5.15% by the end of 2018) and asset gains (11.2% annual returns), the funded ratio would climb to 92% by the end of 2017 and 105% by the end of 2018. Under a pessimistic forecast (3.45% discount rate at the end of 2017 and 2.85% by the end of 2018 and 3.2% annual returns), the funded ratio would decline to 75% by the end of 2017 and 69% by the end of 2018.

Public pension funding status inches back down in Q4 as asset returns fall short of benchmark

Milliman today released the fourth quarter results of its Public Pension Funding Index (PPFI), which consists of the nation’s 100 largest public defined benefit (DB) pension plans. By December 31, 2016, the funded ratio of these plans had fallen to 70.1%, down from 71.0% at the end of September. The funded status declined by $54 billion, the result of modest investment returns for the fourth quarter that fell short of the quarterly benchmark.

The robust market performance seen post-election helped moderate the losses suffered in October, with Q4 investment returns of about 0.45% in aggregate for the quarter. If the recent surge in the equity market holds up and interest rates remain stable, the returns in 2017 Q1 should be much more promising.

The Milliman 100 PPFI total pension liability (TPL) increased from $4.620 trillion at the end of Q3 to an estimated $4.659 trillion at the end of Q4. The TPL is expected to grow modestly over time as interest on the TPL and the accrual of new benefits outpaces the benefits paid to retirees.

To view the Milliman 100 Public Pension Funding Index, click here. To receive regular updates of Milliman’s pension funding analysis, email us.