The funded status of the 100 largest corporate defined benefit pension plans improved by $21 billion during June, as measured by the Milliman 100 Pension Funding Index (PFI). The funding surplus rose to $30 billion, primarily due to asset gains during June. A modicum increase in the benchmark corporate bond interest rates resulted in a relatively small decline in pension liabilities, which also contributed to the funded status improvement. As of June 30, the funded ratio grew to 102.2%, up from 100.7% at the end of May. The mid-year funded ratio is just slightly ahead of the 101.9% funded ratio seen at the start of 2023.
The market value of plan assets increased by $17 billion because of June’s 1.76% investment return. The Milliman 100 PFI asset value rose to $1.346 trillion as of June 30, 2023, from $1.329 trillion as of May 31, 2023. By comparison, the 2023 Milliman Pension Funding Study reported that the monthly expected investment return during 2022 was 0.47 (5.8% annualized). The full results of the annual 2023 study can be found at www.milliman.com/pfs.
The Milliman 100 PFI projected benefit obligation decreased to $1.316 trillion from $1.320 trillion during June. The change resulted from a tiny increase of 1 basis point (bps) in the monthly discount rate, to 5.20% for June, up from 5.19% in May. June’s discount rate is just shy of the 5.22% discount rate seen at the start of 2023.
Highlights
| $ BILLION | ||||
| MV | PBO | FUNDED STATUS | FUNDED PERCENTAGE | |
|---|---|---|---|---|
| May | 1,329 | 1,320 | 9 | 100.7% |
| June | 1,346 | 1,316 | 30 | 102.2% |
| Monthly change | +17 | (3) | +21 | 1.5% |
| YTD Change | (2) | (7) | +5 | 0.3% |
Note: Numbers may not add up precisely due to rounding
Second quarter 2023 summary
For the quarter ending June 30, 2023, assets fell by $6 billion; however, plan liabilities dropped even more, on the order of $35 billion. While the investment return was barely 1% during the second quarter, discount rates climbed by 20 bps and had a much greater impact on funded status. The net result was a funded status improvement of $29 billion for the period, as the funded status surplus grew to $30 billion by the end of the second quarter. The funded ratio of the Milliman 100 companies increased to 102.2% at the end of June from 100.1% at the end of March.
Over the last 12 months (July 2022 – June 2023), the cumulative asset return for these plans was 3.9%, and the Milliman 100 PFI funded status position improved by just $2 billion. The slow funded status growth is primarily due to poor asset returns. Discount rates rose 61 bps to 5.20% from 4.59% one year ago. The funded ratio of the Milliman 100 companies has improved slightly over the past 12 months, to 102.2% from 101.9%.
Figure 1: Milliman 100 Pension Funding Index — Pension surplus/deficit
Figure 2: Milliman 100 Pension Funding Index — Pension funded ratio
2023-2024 projections
If the Milliman 100 PFI companies were to achieve the expected 5.8% average asset return (as per the 2023 PFS), and if the current discount rate of 5.20% were maintained during 2023 and 2024, we forecast that the funded status of the surveyed plans would increase. The funded status is projected to rise to a surplus of $39 billion (funded ratio of 103.0%) by the end of 2023 and to $58 billion (funded ratio of 104.4%) by the end of 2024. For purposes of this forecast, we have assumed 2023 and 2024 aggregate annual contributions of $25 billion.
Under an optimistic forecast with rising interest rates (reaching 5.50% by the end of 2023 and 6.10% by the end of 2024) and asset returns of 9.8% per year, the funded ratio would climb to 108% by the end of 2023 and 122% by the end of 2024. Under a pessimistic forecast with similar interest rate and asset movements (4.90% discount rate at the end of 2023 and 4.30% by the end of 2024 and 1.8% annual returns), the funded ratio would decline to 98% by the end of 2023 and 89% by the end of 2024.
Milliman 100 Pension Funding Index - June 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.