Corporate pension funded ratio at 83.7% in June as discount rate hits historic low

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans.

Despite solid investment returns, June’s PFI funded status worsened by $6 billion due to an 11 basis point drop in the monthly discount rate, from 2.76% in May to 2.65% for June. This month’s discount rate marks the lowest observed in the 20-year history of the Milliman PFI. The PFI funded ratio for the month stayed nearly flat, inching down from 83.8% to 83.7% as of June 30.  Asset gains of $22 billion, thanks to a solid investment return of 1.66%, partially offset the funded status loss.

June’s above-average stock market return caps a strong second quarter of gains, and offsets much of the losses experienced by corporate pensions during the first quarter. But with the discount rate hitting historic lows – and now moored below 3% for the third month in a row – even good investment returns were not enough to procure funding improvements during the second quarter of 2020.

Looking forward, under an optimistic forecast with rising interest rates (reaching 2.95% by the end of 2020 and 3.55% by the end of 2021) and asset gains (10.5% annual returns), the funded ratio would climb to 91% by the end of 2020 and 106% by the end of 2021.  Under a pessimistic forecast (2.35% discount rate by the end of 2020 and 1.75% by the end of 2021 and 2.5% annual returns), the funded ratio would decline to 80% by the end of 2020 and 74% by the end of 2021.

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

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

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