Corporate pension funded status improves by $21 billion in October

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

In October, the funded status of these plans improved by $21 billion, primarily due to liability gains resulting from an increase in the benchmark corporate bond interest rates used to value those liabilities. The monthly discount rate rose 14 basis points for the month, from 2.57% to 2.71%. As a result, the PFI deficit declined to $285 billion, the lowest it’s been since March 2020. At the same time, October’s investment loss of 0.93% resulted in a $20 billion decrease to the market value of assets. The funded ratio for the Milliman 100 PFI rose slightly, from 84.4% at the end of September to 85.1% as of October 31.

All eyes are on the presidential election this month, and what the results might mean for interest rates and investment returns going into year-end. As discount rates tick back up for the third consecutive month, executives should be paying close attention to market movements coming out of this election cycle.

Looking forward, under an optimistic forecast with rising interest rates (reaching 2.81% by the end of 2020 and 3.41% 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 103% by the end of 2021.  Under a pessimistic forecast (2.61% discount rate by the end of 2020 and 2.01% by the end of 2021 and 2.5% annual returns), the funded ratio would decline to 84% by the end of 2020 and 77% by the end of 2021.

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

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