Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In February, these pensions experienced a $20 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 $15 billion as a result of February’s robust investment gain of 1.24%. Pension liabilities also fell to $1.648 trillion at the end of the month, the result of a two basis point increase in the monthly discount rate. The PFI deficit has dropped by $45 billion in the first two months of 2019. The funding ratio of the Milliman 100 PFI rose from 91.4% at the end of January to 92.6% as of February 28.
“February’s investment gains continue to propel corporate pension funding in the right direction, adding to an already positive start to the year,” said Zorast Wadia, co-author of the Milliman 100 PFI. “While the gains of the past two months are good news for these pensions, we’ve still not fully recovered from the $70 billion hole created last December.”
Looking forward, under an optimistic forecast with rising interest rates (reaching 4.58% by the end of 2019 and 5.18% by the end of 2020) and asset gains (10.8% annual returns), the funded ratio would climb to 105% by the end of 2019 and 121% by the end of 2020. Under a pessimistic forecast (3.58% discount rate at the end of 2019 and 2.98% by the end of 2020 and 2.8% annual returns), the funded ratio would decline to 87% by the end of 2019 and 81% by the end of 2020.