Tag Archives: PFS

Despite global pandemic, corporate pension performance for FY 2020 improves slightly over FY 2019

Milliman today released the results of its 2021 Corporate Pension Funding Study (PFS), which analyzes the 100 largest U.S. corporate pension plans. This marks the 21st consecutive year in which the report has been published.

In 2020, despite a 67-basis-point decline in the discount rate, the funded ratio for the Milliman 100 plans climbed slightly, from 87.5% at fiscal year-end (FYE) 2019 to 88.4% at FYE 2020. The year-over-year improvement was the result of better-than-expected investment returns of 13.4%, leading to a PFS all-time-high in the market value of assets, at $1.77 trillion.  After accounting for contributions and benefit payments including settlements, the total asset growth for the year was 9%.

However, this improvement in plan assets was offset by an 8% growth in pension liabilities, with the discount rate dropping from 3.08% at FYE 2019 to 2.41% at FYE 2020. This marks the first time in the 21-year history of the PFS that the discount rate has dropped below 3.00%. Other items of interest from the 2021 PFS include:

  • Pension expense (the charge to the income statement under Accounting Standards Codification Subtopic 715) decreased to $17.7 billion in FY 2020 from $26.1 billion in FY 2019.
  • 19 plans had a funded ratio of at least 100% compared to 14 plans from the 2020 Milliman PFS.
  • Among the Milliman 100 pension plans, settlement payouts totaled an estimated $15.8 billion in FY 2020, up from the $13.5 billion in FY 2019.
  • Average return on asset expectations for FY 2020 were lowered to 6.2% per year from 6.5% per year for FY 2019. This was the largest annual drop in return expectations experienced over the last decade.

Corporate pensions demonstrated their resilience in 2020 amidst a turbulent year of market volatility, declining discount rates, and employer stressors. With a possible end in sight to the pandemic, and funding relief such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act and now the American Rescue Plan Act of 2021, the outlook for these plans is much better than it was 12 months ago.

To view the complete 2021 Milliman Corporate Pension Funding Study, click here.

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

Corporate pension funding ratio at 87.5% at 2019 year-end despite best asset performance in 16+ years

Milliman today released the results of its 2020 Corporate Pension Funding Study (PFS), which analyzes the 100 largest U.S. corporate pension plans. In 2019, these plans experienced their second-highest asset performance in PFS history, with aggregate gains of 17.3%—second only to 2003’s investment return of 19.5%. However, the improvement in the market value of assets was offset by a huge 94 basis-point drop in discount rates, raising pension liabilities and causing the overall pension funding ratio for 2019 to climb only a few percentage points, from 87.1% at 2018 year-end to 87.5% as of December 31, 2019. Now four months into 2020, it remains to be seen how the recent market volatility from the COVID-19 pandemic and implementation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act by Congress will affect these plans.

Corporate pensions have experienced a lot of turbulence so far in 2020, and plan sponsor strategies in response to the recent economic stressors and the CARES Act are just beginning to take shape. Organizations that are considering deferring contributions this year should keep in mind the resulting impact on funded status, tax deductions, Pension Benefit Guaranty Corporation (PBGC) premiums, and pension expense.

Results from this year’s PFS show that employers contributed less than expected to corporate pensions in 2019, with contributions totaling $34.0 billion for the year, compared to the record-setting amounts contributed in 2018 and 2017 ($59.5 billion and $61.8 billion, respectively).

Milliman’s 2020 study also includes an analysis of pension funding across business sectors and found that, for instance, plans in the financial services sector had an average funding ratio of 101% for 2019, while corporate pensions in the industrials and energy sectors had an average funding ratio below 83%.

To view the complete 2020 Milliman Corporate Pension Funding Study, click here.

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

What does corporate pension funding look like by sector? (Infographic)

Milliman recently released the 19th edition of its Corporate Pension Funding Study, which analyzes funding information for the 100 largest U.S. corporate pension plans. New this year, the study also includes an analysis of pension plan funding by business sector including funded ratio, asset allocation, and expected investment returns.

Corporate pension funding ratio climbs to 87.1% at 2018 year-end despite worst asset performance in a decade

Milliman today released the results of its 2019 Corporate Pension Funding Study (PFS), which analyzes the 100 largest U.S. corporate pension plans. Employers in Milliman’s PFS continued last year’s trend of large pension contributions, adding $57.5 billion in funds to their pensions in 2018. This year saw three of the top 10 largest contributions in the history of the PFS, from AT&T ($9.3 billion, second-largest in PFS history), General Electric ($6.8 billion, 4th largest), and Lockheed Martin Corporation ($5 billion). Employer contributions have totaled nearly $120 billion over the last two years, exceeding any two-year period in our study’s history.  With that said, contribution levels are expected to decrease in fiscal year 2019.

Along with the contributions noted above, a large discount rate increase helped drive an overall pension funding improvement for PFS plans in 2018, despite disappointing investment losses of 2.8%. The funded ratio for the Milliman 100 pensions rose from 85.8% at the end of 2017 to 87.1% at the end of 2018, though the year’s asset performance was the worst seen since 2008. The discount rate climbed 52 basis points in 2018, the second-largest annual increase since the PFS began tracking funding.

We’re accustomed to faulting the low discount rate climate and its negative effect on pension funding, but in 2018 discount rate increases as well as large plan sponsor contributions helped dig corporate pensions out of the funding hole created by investment losses. In fact, this was the first time in our study’s history that we had a negative asset return and yet corporate pension funding improved.

New this year, the study also includes an analysis of pension funding across business sectors.  For instance, the study found that plans in the financial services sector have an average funding ratio of 100%, while corporate pensions in the industrials, energy, and basic materials sectors have average funding ratios below 85%.

To view the complete 2019 Milliman Corporate 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.