Corporate pensions experience largest one-month investment loss in a decade, but year-to-date funding remains healthy

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In October, these pensions experienced a $13 billion decline in funded status resulting from a significant investment loss of 3.42%. This brings the PFI’s year-to-date investment performance to a loss of 1.99%; October 2018 marks the biggest one-month investment loss for these plans since January 2008’s 3.57% loss. From September 30 to October 31, the PFI’s asset value declined by $57 billion, while the funded ratio dropped one percentage point from 94.4% to 93.4%.

October wasn’t all bad news for corporate pensions, however. An increase in the benchmark corporate bond interest rates used to value pension liabilities helped offset the month’s investment losses. The monthly discount rate rose 22 points, from 4.18% to 4.40%, resulting in a $44 billion improvement in pension liabilities. This also marks the largest discount rate swing year-to-date.

While October was a record-setting month by all accounts, plan sponsors should continue to keep their heads up as we approach the end of Q4. Despite the month’s substantial investment loss, overall funded status for these pensions remains up by $117 billion for the year.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.50% by the end of 2018 and 5.10% by the end of 2019) and asset gains (10.8% annual returns), the funded ratio would climb to 96% by the end of 2018 and 111% by the end of 2019. Under a pessimistic forecast (4.30% discount rate at the end of 2018 and 3.70% by the end of 2019 and 2.8% annual returns), the funded ratio would decline to 92% by the end of 2018 and 86% by the end of 2019.

To view the complete Pension Funding Index, click here. To see the 2018 Milliman Pension Funding Study, click here.

To receive regular updates of Milliman’s pension funding analysis, contact us here.

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