Corporate pension funding ratio at 87.5% at 2019 year-end despite best asset performance in 16+ years

Milliman today released the results of its 2020 Corporate Pension Funding Study (PFS), which analyzes the 100 largest U.S. corporate pension plans. In 2019, these plans experienced their second-highest asset performance in PFS history, with aggregate gains of 17.3%—second only to 2003’s investment return of 19.5%. However, the improvement in the market value of assets was offset by a huge 94 basis-point drop in discount rates, raising pension liabilities and causing the overall pension funding ratio for 2019 to climb only a few percentage points, from 87.1% at 2018 year-end to 87.5% as of December 31, 2019. Now four months into 2020, it remains to be seen how the recent market volatility from the COVID-19 pandemic and implementation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act by Congress will affect these plans.

Corporate pensions have experienced a lot of turbulence so far in 2020, and plan sponsor strategies in response to the recent economic stressors and the CARES Act are just beginning to take shape. Organizations that are considering deferring contributions this year should keep in mind the resulting impact on funded status, tax deductions, Pension Benefit Guaranty Corporation (PBGC) premiums, and pension expense.

Results from this year’s PFS show that employers contributed less than expected to corporate pensions in 2019, with contributions totaling $34.0 billion for the year, compared to the record-setting amounts contributed in 2018 and 2017 ($59.5 billion and $61.8 billion, respectively).

Milliman’s 2020 study also includes an analysis of pension funding across business sectors and found that, for instance, plans in the financial services sector had an average funding ratio of 101% for 2019, while corporate pensions in the industrials and energy sectors had an average funding ratio below 83%.

To view the complete 2020 Milliman Corporate Pension Funding Study, click here.

To receive regular updates of Milliman’s pension funding analysis, contact us here.