Corporate pension funding drops by $3 billion in August

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In August, these pensions experienced a $3 billion drop in funded status due to a decrease in the benchmark corporate bond interest rates used to value pension liabilities. The monthly discount rate fell six basis points from 4.11% in July to 4.05% as of August 31. The projected benefit obligation (PBO) for these plans increased by $12 billion during this time period, while the market value of assets rose by $9 billion thanks to August’s strong investment gains of 0.85%. The funding ratio for the Milliman 100 PFI dipped slightly during the month from 93.5% to 93.3%.

The last time we saw the PFI funding ratio remain over 90% for eight months in a row was during 2008– directly preceding the financial market collapse. Investment gains continue to buoy corporate pensions despite the continued low discount rate environment.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.25% by the end of 2018 and 4.85% by the end of 2019) and asset gains (10.8% annual returns), the funded ratio would climb to 98% by the end of 2018 and 114% by the end of 2019. Under a pessimistic forecast (3.85% discount rate at the end of 2018 and 3.25% 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.

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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