Milliman, Inc., a premier global consulting and actuarial firm, today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In August, the PFI monthly discount rate dropped by 42 basis points to 2.95%, the lowest ever recorded in the 19-year history of the index. Until August, the Milliman 100 PFI had never reported a discount rate below 3.00%.
As a result, the funded status deficit ballooned from $219 billion at the end of July to $306 billion as of August 31, an $87 billion funding decrease for these plans. The projected benefit obligation (PBO) increased by a whopping $104 billion, though it was partially offset by $17 billion in investment gains for the month. During August, the funded ratio of the Milliman 100 PFI fell from 87.7% to 83.8%.
Discount rates have fallen by 110 basis points over the past twelve months, slashing corporate pension funding and hitting an all-time low for the PFI. In fact, at this time last year the funded ratio for these plans was roughly ten percentage points higher, at 93.1%, than we’re seeing now. Looking forward, under an optimistic forecast with rising interest rates (reaching 3.15% by the end of 2019 and 3.75% by the end of 2020) and asset gains (10.6% annual returns), the funded ratio would climb to 88% by the end of 2019 and 103% by the end of 2020. Under a pessimistic forecast (2.75% discount rate at the end of 2019 and 2.15% by the end of 2020 and 2.6% annual returns), the funded ratio would decline to 82% by the end of 2019 and 75% by the end of 2020.
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