Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In July, these pensions experienced a $12 billion increase in funded status due to robust investment returns of 1.15% for the month. Assets increased by $13 billion in July, with the PFI deficit falling from $120 billion to $108 billion, while pension liabilities increased by $1 billion due to a slight dip in the benchmark corporate bond interest rates used to value pension liabilities. The funded ratio climbed from 92.7% at the end of June to 93.4% as of July 31, the highest it’s been in a decade.
Corporate pension funding ratios are back at percentages we saw pre-global financial crisis, though ten years ago discount rates were almost double what they are today. In fact, July’s strong investment returns would have had an even more pronounced impact on these plans, except for the fact that a majority of the Milliman 100 companies have heavy fixed income concentrations.
Looking forward, under an optimistic forecast with rising interest rates (reaching 4.36% by the end of 2018 and 4.96% by the end of 2019) and asset gains (10.8% annual returns), the funded ratio would climb to 99% by the end of 2018 and 115% by the end of 2019. Under a pessimistic forecast (3.86% discount rate at the end of 2018 and 3.26% by the end of 2019 and 2.8% annual returns), the funded ratio would decline to 91% by the end of 2018 and 84% by the end of 2019.