Corporate pensions’ investment losses in February buoyed by higher discount rates

Milliman has released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. Despite the market volatility in February, these pensions experienced a $13 billion improvement in funded status thanks to an increase in the corporate bond rates used to measure pension liabilities. While the market value of assets for these pensions lost $32 billion in February, plan liabilities also shrunk, narrowing the deficit from $219 billion at the end of January to $206 billion as of February 28. The funded ratio for the Milliman 100 PFI rose from 87.3% to 87.7% during the same time period.

Despite the recent market volatility, February’s 21 basis point discount rate increase buoyed pension funding this month. In fact, thanks to strong investment performance in January along with an increase in discount rates in both January and February, overall pension funding for these plans has risen $75 billion over the past two months – not a bad way to start 2018.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.45% by the end of 2018 and 5.05% by the end of 2019) and asset gains (11.0% annual returns), the funded ratio would climb to 99% by the end of 2018 and 114% by the end of 2019. Under a pessimistic forecast (3.45% discount rate at the end of 2018 and 2.85% by the end of 2019 and 3.0% annual returns), the funded ratio would decline to 82% by the end of 2018 and 75% by the end of 2019.

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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