Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans.
Despite robust investment returns, July’s PFI funded status worsened by $68 billion due to a 39 basis point drop in the monthly discount rate, from 2.65% in June to 2.26% for July. July’s low discount rate eclipses the record low set in June. The projected benefit obligation (PBO) for the Milliman 100 PFI rose to $2.047 trillion, the first time the PBO for these plans has crossed the $2 trillion threshold. Asset gains of $41 billion, thanks to a solid investment return of 2.85%, partially offset the increase in liabilities. The funded ratio for these plans dropped from 83.5% as of June 30 to 81.1% at July’s end.
The funded ratio as of July 31 is the lowest in nearly four years—since October 2016—dropping 8.7 percentage points in the last seven months. July’s robust investment returns build on a strong second quarter for asset values, but it wasn’t enough to create funding gains, given that we’ve had four months straight of discount rate declines culminating with the lowest discount rate in the 20-year history of our study.
Looking forward, under an optimistic forecast with rising interest rates (reaching 2.51% by the end of 2020 and 3.11% by the end of 2021) and asset gains (10.5% annual returns), the funded ratio would climb to 87% by the end of 2020 and 102% by the end of 2021. Under a pessimistic forecast (2.01% discount rate by the end of 2020 and 1.41% by the end of 2021 and 2.5% annual returns), the funded ratio would decline to 78% by the end of 2020 and 72% by the end of 2021.
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