Despite steep Q2 discount rate decline, corporate pension funded ratio still ahead of the start of the year

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In June, the funded status of these plans fell by $4 billion, the result of lower-than-expected investment returns and a decrease in the benchmark corporate bond interest rates used to value pension liabilities. The Milliman 100 PFI plans saw their deficit grow from $281 billion to $285 billion with a two basis point drop from May to June. As of June 30, the funded ratio had inched down from 83.7% to 83.5%, though that mid-year number is still slightly above where it was at the start of 2017.

While June saw lackluster investment returns of 0.35%, overall the Milliman 100 PFI assets performed better than expected in Q2—some much needed good news for these plans whose liabilities continue to grow as discount rates decline.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.04% by the end of 2017 and 4.64% by the end of 2018) and asset gains (11.0% annual returns), the funded ratio would climb to 90% by the end of 2017 and 103% by the end of 2018. Under a pessimistic forecast (3.44% discount rate at the end of 2017 and 2.84% by the end of 2018 and 3.0% annual returns), the funded ratio would decline to 80% by the end of 2017 and 73% by the end of 2018.

To view the complete Pension Funding Index, click here. To receive regular updates of Milliman’s pension funding analysis, contact us here.

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