Tag Archives: defined benefit

July’s corporate pension funding ratio reaches 93.4%, highest in a decade

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.

To view the complete Pension Funding Index, click here. To receive regular updates of Milliman’s pension funding analysis, contact us here.

Corporate pension funding increases by $23 billion in June as discount rates hit two-year high

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In June, these pensions experienced a $23 billion increase in funded status, with the deficit of the Milliman 100 PFI plans falling from $141 billion at the end of May to $118 billion as of June 30. The improvement was due to an increase in the benchmark corporate bond interest rates used to value pension liabilities, which saw discount rates increase by 13 basis points from 3.99% to 4.12% over the same time period. The funded ratio for the Milliman 100 PFI jumped to 92.8% as of June 30, and would have been higher had it not been for June’s poor investment returns of -0.09%.

Six months into 2018 and corporate pensions are well ahead of where they started at the beginning of the year. The rise in discount rates has helped these pensions stay on track, with June marking the highest rate since January 2016 and the Milliman 100 funding ratio climbing from 87.6% to 92.8% for the first half of the year. This is despite investment performance falling short of expectations so far in 2018.

June’s -0.09% investment return left Milliman 100 PFI asset value to decline from $1.531 trillion at the end of May to $1.526 trillion as of June 30. By comparison, the 2018 Milliman Pension Funding Study reported that the monthly median expected investment return during 2017 was 0.55% (6.8% annualized). The projected benefit obligation (PBO) decreased by $28 billion during June, lowering the Milliman 100 PFI value to $1.644 trillion.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.42% by the end of 2018 and 5.02% by the end of 2019) and asset gains (10.8% annual returns), the funded ratio would climb to 100% by the end of 2018 and 116% by the end of 2019. Under a pessimistic forecast (3.82% discount rate at the end of 2018 and 3.22% by the end of 2019 and 2.8% annual returns), the funded ratio would decline to 89% by the end of 2018 and 83% 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.

Corporate pension funded status dips by $2 billion in May

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In May, these pensions experienced a $2 billion dip in funded status as investment gains mostly offset a four-point decrease in the monthly discount rate. The funded ratio for the Milliman 100 PFI remains unchanged at 91.6% as of May 31.

Sometimes no news is good news for corporate pensions. May’s 0.73% investment gain exceeded monthly expectations, and helped balance out the month’s modest decrease in corporate bond rates.

From April 30, 2018, through May 31, Milliman 100 PFI plans experienced a $7 billion increase in asset values, while the projected benefit obligation (PBO) rose by $9 billion. As a result, the deficit increased from $139 billion to $141 billion for the month. Over the last year (June 2017 to May 2018), the Milliman 100 PFI funded status deficit has improved by $116 billion.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.34% by the end of 2018 and 5.03% by the end of 2019) and asset gains (10.8% annual returns), the funded ratio would climb to 100% by the end of 2018 and 116% by the end of 2019. Under a pessimistic forecast (3.64% discount rate at the end of 2018 and 3.03% by the end of 2019 and 2.8% annual returns), the funded ratio would decline to 87% by the end of 2018 and 81% 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.

Corporate pensions’ funded ratio rises to 91.6% despite investment losses in April

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In April, these pensions experienced a $20 billion improvement in funded status thanks to an increase in the corporate bond rates used to measure pension liabilities. From March 31, 2018, through April 30, the monthly discount rate increased 12 basis points, from 3.91% to 4.03%; as a result, pension liabilities decreased by $26 billion for the month. The funded ratio for the PFI plans increased from 90.6% to 91.6%, despite a 0.11% investment loss that reduced index assets by $6 billion.

Corporate pensions continue to get some discount rate relief in 2018, despite volatile equity markets. Over the past 12 months, with the rise in rates and a 6.17% cumulative asset gain for these plans, we’ve seen the funded ratio climb from 85.5% to 91.6%.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.43% by the end of 2018 and 5.03% by the end of 2019) and asset gains (10.8% annual returns), the funded ratio would climb to 101% by the end of 2018 and 117% by the end of 2019. Under a pessimistic forecast (3.63% discount rate at the end of 2018 and 3.03% by the end of 2019 and 2.8% annual returns), the funded ratio would decline to 87% by the end of 2018 and 81% by the end of 2019.

To view the complete Pension Funding Index, click here. This May PFI publication reflects the annual update of the Milliman 100 companies and their latest financial disclosures. To see the 2018 Milliman Pension Funding Study, click here. To receive regular updates of Milliman’s pension funding analysis, contact us here.

Corporate pension contributions reach record level in 2017, funding status improved to 86.0%

Milliman today released the results of its 2018 Corporate Pension Funding Study (PFS), which analyzes the 100 largest U.S. corporate pension plans. Overall, this year’s study found that in 2017 corporate pension contributions hit $62 billion, tying the amount contributed in 2012 for the highest contributions since the inception of the PFS. Seventeen employers contributed at least $1 billion to their plans, with seven of them contributing more than $2 billion.

There were incentives to increase contributions in 2017. Additional contributions can both reduce the Pension Benefit Guaranty Corporation (PBGC) premiums paid by these plans, and allow them to leverage higher tax deductions in light of tax reform enacted at the end of 2017. It’s a trend that’s likely to flourish in 2018, as plan sponsors with calendar year plans can continue to leverage those higher 2017 tax deductions with contributions made prior to September 15 of this year.

The funded ratio for the Milliman 100 plans rose from 81.1% in 2016 to 86.0% in 2017, an increase due largely to strong investment returns coupled with a modest decline in life expectancy assumptions, and the higher level of plan contributions as noted above. Funding ratios for plans ranged from a low of 62.4% for American Airlines to a high of 155.0% for NextEra Energy, Inc.

Other key highlights from the 2018 study include:

Analysis of asset gains. Strong investment returns added $175 billion to the Milliman 100 plans, with a 12.7% rate of return (compared to an expected investment return of 6.8%). Pension assets for the Milliman 100 plans increased to an all-time high of $1.55 trillion.

Analysis of discount rate and pension liabilities. The median discount rate as of year-end 2017 declined to 3.60%, down 37 basis points from 3.97% the year before. Pension liabilities for the Milliman 100 plans increased to an all-time high of $1.80 trillion.

Pension Risk Transfer (PRT) market matures. The 2017 PRT activity for the Milliman 100 plans was slightly smaller than in 2016, with an estimated $12.7 billion in reported dollar volume.

To view the complete Pension Funding Study, click here. To receive regular updates of Milliman’s pension funding analysis, contact us here.

International M&A deals can benefit from independent actuarial valuations

A Milliman client, a global information technology (IT) company, acquired an operation in Spain. Along with the acquisition came the operation’s local retirement program, with its associated assets and liabilities, including a defined benefit (DB) pension obligation.

As part of the acquisition process, an actuary—appointed by the seller—carried out an actuarial valuation of the existing local retirement liability. Not long after the acquisition, the company asked Milliman to carry out the actuarial valuations for accounting purposes, covering operations in several countries.

To read more about the work Milliman did—and to learn why expert international actuarial advice is so important for successful global M&A deals—see Dominic Clark’s article here.