Category Archives: Defined benefit

Corporate pensions face largest monthly loss of 2017 in August

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In August, the funded status of these plans fell by $17 billion – the largest loss year-to-date – due to a decrease in the benchmark corporate bond interest rates used to value pension liabilities. The Milliman 100 PFI plans saw their deficit swell from $281 billion as of July 31 to $298 billion at the end of August. The funded ratio dropped from 83.8% to 83.0% over the same time period, and is now below where it was at the beginning of 2017 for the first time this year.

The funded ratio for the Milliman 100 plans continues to teeter up and down during 2017, and now we find it below the mark set at the beginning of the year. It will be interesting to see how discount rates will change over the next few months and how the potential release of updated mortality tables will affect pension contributions and funded status going forward.

Looking forward, under an optimistic forecast with rising interest rates (reaching 3.80% by the end of 2017 and 4.40% by the end of 2018) and asset gains (11.0% annual returns), the funded ratio would climb to 87% by the end of 2017 and 100% by the end of 2018. Under a pessimistic forecast (3.40% discount rate at the end of 2017 and 2.80% by the end of 2018 and 3.0% annual returns), the funded ratio would decline to 81% by the end of 2017 and 74% by the end of 2018.

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

Public pension funding ticks upward in Q2 amid strong investment returns

Milliman today released the second quarter results of its Public Pension Funding Index (PPFI), which consists of the nation’s 100 largest public defined benefit pension plans. In Q2 2017, the funded ratio of these plans ticked upward, climbing from 72.0% at the end of March to 73.0% as of June 30, 2017. These plans saw their funded status improve by $33 billion for the quarter, the result of strong investment returns (measuring 3.06% in aggregate) that led public plan asset growth to outpace the rise in pension liabilities.

The Milliman 100 PPFI total pension liability (TPL) increased from $4.698 trillion at the end of Q1 to an estimated $4.737 trillion at the end of Q2. 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. The second quarter also saw four more Milliman 100 plans cross the 90% funded mark; as of the end of Q2, 19 plans have funded ratios above 90%, 60 have funded ratios between 60% and 90%, and 21 have funded ratios lower than 60%.

During the first half of 2017, the number of PPFI plans funded at 90% or above has almost doubled. But while strong market returns have helped plans across the board this spring, the lowest funded plans simply do not have enough dollars in the market for these favorable conditions to boost their funded ratios appreciably. In the absence of more contributions from plan sponsors, these poorly funded plans might find themselves in a position where benefit reforms are necessary in order to maintain their ability to pay benefits.

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

Asset-liability management improves Italian pension funds’ investment strategy

In Italy, some pensions are obligated to offer a capital guaranteed subfund to plan participants. While many participants see guaranteed subfunds as safe options, the investment may not meet their long-term retirement objectives. In this article, Milliman’s Dominic Clark highlights asset-liability management (ALM) analyses that were conducted for a large institutional Italian pension fund. The client’s main aims were twofold:

• To better understand the fit between asset allocation and expected future liabilities given the constraint of having to respect the capital guarantee of the guaranteed subfund.
• To better inform participants regarding the likely evolution of their account balances, and in particular, provide fund-specific projections that can help guide members in their choice of future contribution levels.

July’s corporate pension funded status steady amid investment gains, discount rate decline

Milliman has released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In July, the funded status of these plans rose by $4 billion as the Milliman 100 PFI deficit shrank from $286 billion at the end of June to $282 billion at the end of July. The slight increase in funded status resulted from strong investment gains that compensated for a decrease in the benchmark corporate bond interest rates used to value pension liabilities. The funded ratio inched up from 83.5% the previous month to 83.7% as of July 31. Over the past seven months the funded ratio of these plans has been teetering between 83% and 84%.

Given the relatively strong market returns contrasted with persistently low interest rates, it’s no surprise that there’s been little movement this year in the funded ratio for the Milliman 100 plans. With the lack of funded ratio improvement, we’re seeing a number of sponsors make additional contributions with an eye towards shoring up funded status in the future.

Looking forward, under an optimistic forecast with rising interest rates (reaching 3.96% by the end of 2017 and 4.56% by the end of 2018) and asset gains (11.0% annual returns), the funded ratio would climb to 89% by the end of 2017 and 102% by the end of 2018. Under a pessimistic forecast (3.46% discount rate at the end of 2017 and 2.86% by the end of 2018 and 3.0% annual returns), the funded ratio would decline to 81% by the end of 2017 and 74% by the end of 2018.

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

Keeping track of pension participants

Monitoring the life status of pension plan participants and beneficiaries is an important fiduciary requirement. The inability to locate them can produce an administrative burden for plan sponsors. The latest DB Digest article, “Fiduciary responsibilities: Wanted dead or alive,” by Milliman’s Verna Brenner highlights three auditing strategies plan sponsors should consider to effectively track retirees.

Despite steep Q2 discount rate decline, corporate pension funded ratio still ahead of the start of the year

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In June, the funded status of these plans fell by $4 billion, the result of lower-than-expected investment returns and a decrease in the benchmark corporate bond interest rates used to value pension liabilities. The Milliman 100 PFI plans saw their deficit grow from $281 billion to $285 billion with a drop of two basis points from May to June. As of June 30, the funded ratio had inched down from 83.7% to 83.5%, though that midyear number is still slightly above where it was at the start of 2017.

While June saw lackluster investment returns of 0.35%, overall the Milliman 100 PFI assets performed better than expected in Q2—some much needed good news for these plans, whose liabilities continue to grow as discount rates decline.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.04% by the end of 2017 and 4.64% by the end of 2018) and asset gains (11.0% annual returns), the funded ratio would climb to 90% by the end of 2017 and 103% by the end of 2018. Under a pessimistic forecast (3.44% discount rate at the end of 2017 and 2.84% by the end of 2018 and 3.0% annual returns), the funded ratio would decline to 80% by the end of 2017 and 73% by the end of 2018.

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