Corporate pension funding ratio climbs to 87.1% at 2018 year-end despite worst asset performance in a decade

Milliman today released the results of its 2019 Corporate Pension Funding Study (PFS), which analyzes the 100 largest U.S. corporate pension plans. Employers in Milliman’s PFS continued last year’s trend of large pension contributions, adding $57.5 billion in funds to their pensions in 2018. This year saw three of the top 10 largest contributions in the history of the PFS, from AT&T ($9.3 billion, second-largest in PFS history), General Electric ($6.8 billion, 4th largest), and Lockheed Martin Corporation ($5 billion). Employer contributions have totaled nearly $120 billion over the last two years, exceeding any two-year period in our study’s history.  With that said, contribution levels are expected to decrease in fiscal year 2019.

Along with the contributions noted above, a large discount rate increase helped drive an overall pension funding improvement for PFS plans in 2018, despite disappointing investment losses of 2.8%. The funded ratio for the Milliman 100 pensions rose from 85.8% at the end of 2017 to 87.1% at the end of 2018, though the year’s asset performance was the worst seen since 2008. The discount rate climbed 52 basis points in 2018, the second-largest annual increase since the PFS began tracking funding.

We’re accustomed to faulting the low discount rate climate and its negative effect on pension funding, but in 2018 discount rate increases as well as large plan sponsor contributions helped dig corporate pensions out of the funding hole created by investment losses. In fact, this was the first time in our study’s history that we had a negative asset return and yet corporate pension funding improved.

New this year, the study also includes an analysis of pension funding across business sectors.  For instance, the study found that plans in the financial services sector have an average funding ratio of 100%, while corporate pensions in the industrials, energy, and basic materials sectors have average funding ratios below 85%.

To view the complete 2019 Milliman Corporate Pension Funding Study, click here. To receive regular updates of Milliman’s pension funding analysis, contact us here.