Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In April, corporate pensions saw their funding ratios decline as discount rates dropped below 3%, nearing all-time PFI lows and offsetting positive investment gains for the month.
April saw the funding deficit of the Milliman 100 PFI swell to $299 billion, from $241 billion at the end of March. This worsening of the deficit was the result of a 47 basis point decrease in the monthly discount rate, from 3.39% to 2.92% during April. The decrease in funding was partially offset by a $55 billion increase in the market value of assets, with PFI plans experiencing a 3.93% investment gain for the month. Still, April’s PFI funding ratio fell from 86.3% to 84.0% as a result of the lower discount rates.
Despite promising investment returns, that familiar antagonist – low discount rates – has struck corporate pensions again in April, eroding any market rebound pensions might have experienced.
Looking forward, under an optimistic forecast with rising interest rates (reaching 3.32% by the end of 2020 and 3.92% by the end of 2021) and asset gains (10.5% annual returns), the funded ratio would climb to 93% by the end of 2020 and 109% by the end of 2021. Under a pessimistic forecast (2.52% discount rate by the end of 2020 and 1.92% by the end of 2021 and 2.5% annual returns), the funded ratio would decline to 79% by the end of 2020 and 73% by the end of 2021.
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