The funded status of the country’s 100 largest corporate defined benefit pension plans decreased by $8 billion during November, as measured by the Milliman 100 Pension Funding Index (PFI). A hefty decrease in the benchmark corporate bond interest rates used to value pension liabilities led to a steep rise in plan liabilities of $82 billion for the month. As of November 30, the funded ratio slid to 103.2%, down from 104.1% at the end of October, and the funded status surplus decreased to $41 billion.
The market value of plan assets rose by $74 billion as a result of November’s significant 6.53% investment return, the largest monthly investment return of 2023. The Milliman 100 PFI asset value increased to $1.302 trillion at the end of November. By comparison, the 2023 Milliman Pension Funding Study (PFS) reported that the monthly expected investment return during 2022 was 0.47% (5.8% annualized). The full results of the 2023 PFS can be found at www.milliman.com/pfs.
Highlights
| $ BILLION | FUNDED PERCENTAGE | |||
|---|---|---|---|---|
| MV | PBO | FUNDED STATUS | ||
| October | 1,228 | 1,179 | 49 | 104.1% |
| November | 1,302 | 1,261 | 41 | 103.2% |
| Monthly change | +74 | +82 | (8) | -0.9% |
| YTD Change | (46) | (62) | +16 | 1.3% |
Note: Numbers may not add up precisely due to rounding
In November, the projected benefit obligation increased to $1.261 trillion from $1.179 trillion at the end of October. This change is a result of the dramatic 65-basis-point (bps) drop in the monthly discount rate, to 5.55% for November from 6.20% in October. It is the largest discount rate decline since December 2008 and the third largest drop in the 23-year history of our study.
Over the last 12 months (December 2022 to November 2023), the cumulative asset return for the PFI plans was 2.83%, and the Milliman 100 PFI funded status position declined by $7 billion. The funded status drop is primarily the result of lower-than-expected investment returns partially offset by net increases in discount rates over the past 12-month period. Discount rates increased by 39 bps, to 5.55% from 5.16% one year ago. The funded ratio of the Milliman 100 companies decreased over the past 12 months, to 103.2% from 103.6%.
We will continue to closely monitor the movement of the financial markets and the interest rate environment as year-end approaches.
Figure 1: Milliman 100 Pension Funding Index — Pension surplus/deficit
Figure 2: Milliman 100 Pension Funding Index — Pension funded ratio
2024-2025 projections
If the Milliman 100 PFI companies were to achieve the expected 5.8% median asset return (as per the 2023 PFS), and if the current discount rate of 5.55% were maintained during the last month of 2023 through the end of 2025, we forecast that the funded status of the surveyed plans would increase. This would result in a projected pension surplus of $57 billion (funded ratio of 104.6%) by the end of 2024 and a projected pension surplus of $72 billion (funded ratio of 105.8%) by the end of 2025. For purposes of this forecast, we have assumed 2024 and 2025 aggregate annual contributions of $25 billion.
Under an optimistic forecast with rising interest rates (reaching 6.20% by the end of 2024 and 6.80% by the end of 2025) and asset gains (9.8% annual returns), the funded ratio would climb to 117% by the end of 2024 and 130% by the end of 2025. Under a pessimistic forecast with similar interest rate and asset movements (4.90% discount rate at the end of 2024 and 4.30% by the end of 2025 and 1.8% annual returns), the funded ratio would decline to 93% by the end of 2024 and 85% by the end of 2025.
Milliman 100 Pension Funding Index - December 2023 (all dollar amounts in millions)
Pension asset and liability returns
About the Milliman 100 monthly Pension Funding Index
For the past 23 years, Milliman has conducted an annual study of the 100 largest defined benefit pension plans sponsored by U.S. public companies. The Milliman 100 Pension Funding Index projects the funded status for pension plans included in our study, reflecting the impact of market returns and interest rate changes on pension funded status, utilizing the actual reported asset values, liabilities, and asset allocations of the companies’ pension plans.
The results of the Milliman 100 Pension Funding Index were based on the actual pension plan accounting information disclosed in the footnotes to the companies’ annual reports for the 2022 fiscal year and for previous fiscal years. This pension plan accounting disclosure information was summarized as part of the Milliman 2023 Pension Funding Study, which was published on April 20, 2023. In addition to providing the financial information on the funded status of U.S. qualified pension plans, the footnotes may also include figures for the companies’ nonqualified and foreign plans, both of which are often unfunded or subject to different funding standards than those for U.S. qualified pension plans. They do not represent the funded status of the companies’ U.S. qualified pension plans under ERISA.