Milliman has released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In November, these pensions experienced a $7 billion increase in funded status resulting from a robust investment gain of 0.72%. This brings the PFI’s year-to-date investment performance to a loss of 1.49%, making it likely these plans will miss the expected return assumption for 2018.
It’s looking likely that the Milliman 100 plans will miss their target investment returns for the third time since the financial crisis. On the other hand, interest rates have been rising for most of the year, primarily contributing to the year-to-date funded status improvement of $121 million. All eyes are now focused on where interest rates will end up at year-end.
Pension plan liabilities improved marginally, by $1 billion, in November, as the benchmark corporate bond interest rates used to value those liabilities increased one basis point, from 4.40% to 4.41%. The funded ratio of the Milliman 100 PFI increased slightly, from 93.2% at the end of October to 93.7% as of November 30.
Looking forward, under an optimistic forecast with rising interest rates (reaching 5.06% by the end of 2019 and 5.66% by the end of 2020) and asset gains (10.8% annual returns), the funded ratio would climb to 110% by the end of 2019 and 127% by the end of 2020. Under a pessimistic forecast (3.76% discount rate at the end of 2019 and 3.16% by the end of 2020 and 2.8% annual returns), the funded ratio would decline to 87% by the end of 2019 and 80% by the end of 2020.
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