Milliman today released the year-end results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In 2019, corporate pension funding ended down $30 billion for the year, with the funding ratio dropping from 89.4% at the end of 2018 to 89.0% as of December 31, 2019.
Plan assets outperformed expectations, posting an annual return of 15.66% and a gain of $174 billion. But record-low discount rates resulted in plan liabilities increasing as well, by $204 billion during 2019. As of December 31, the Milliman 100 discount rate had fallen 99 basis points, from 4.19% at the end of 2018 to 3.20% a year later. This marks the lowest year-end discount rate that has been recorded in the 19-year history of the Milliman 100 Pension Funding Index (PFI).
For corporate pensions during 2019, the funded status environment was like trying to fill a bucket full of holes with water—funding levels would rise given superb asset gains but then quickly recede given offsetting liability movements attributable to ever-falling discount rates. Looking ahead to 2020, many plan sponsors can expect to have a rise in pension expense given the funded status losses suffered by plans during 2019.
Looking forward, under an optimistic forecast with rising interest rates (reaching 3.80% by the end of 2020 and 4.40% by the end of 2021) and asset gains (10.6% annual returns), the funded ratio would climb to 104% by the end of 2020 and 121% by the end of 2021. Under a pessimistic forecast (2.60% discount rate at the end of 2020 and 2.00% by the end of 2021 and 2.6% annual returns), the funded ratio would decline to 82% by the end of 2020 and 76% by the end of 2021.
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