The funded status of the 100 largest corporate defined benefit pension plans posted their largest monthly increase for the year in October, improving by $47 billion as measured by the Milliman 100 Pension Funding Index (PFI). An increase in the benchmark corporate bond interest rates used to value pension liabilities led to a decrease in plan liabilities, representing a gain of $51 billion for the month. As of October 31, the funded ratio jumped to 112.8%, from 108.8% at the end of September, and the funded status surplus increased to $163 billion.
The market value of assets fell by $4 billion as a result of October’s mediocre 0.21% investment gain. Despite strong equity performance for the month, the Milliman 100 plans are heavily weighted in fixed income, where returns were negative amid rising interest rates. The Milliman 100 PFI asset value decreased to $1.428 trillion at the end of October. By comparison, the 2022 Milliman Corporate Pension Funding Study (PFS) reported that the monthly median expected investment return during 2021 was 0.48% (5.9% annualized). The full results of the 2022 PFS can be found at www.milliman.com/pfs.
In October, the projected benefit obligation decreased to $1.266 trillion. The change resulted from an increase of 35 basis points in the monthly discount rate to 5.71% for October from 5.36% in September. Discount rates have not been this high since March 2010.
Over the last 12 months (November 2021 to October 2022), the cumulative asset losses for these pension plans has been 15.71%, and yet the Milliman 100 PFI funded status position has improved by $224 billion. The funded status gain is primarily the result of significant increases in discount rates over the past 12-month period. Discount rates increased by 299 basis points to 5.71% from 2.72% one year ago. The funded ratio of the Milliman 100 companies has significantly increased over the past 12 months, to 112.8% from 96.7%.
We will continue to closely monitor the movement of the financial markets and the interest rate environment as year-end approaches.
Highlights
| $ BILLION | ||||
| MV | PBO | FUNDED STATUS | FUNDED PERCENTAGE | |
|---|---|---|---|---|
| September | 1,432 | 1,316 | 116 | 108.8% |
| October | 1,428 | 1,266 | 163 | 112.8% |
| MONTHLY CHANGE | (4) | (51) | +47 | 4.0% |
| YTD CHANGE | (358) | (559) | +201 | 14.9% |
Note: Numbers may not add up precisely due to rounding
FIGURE 1: MILLIMAN 100 PENSION FUNDING INDEX — PENSION SURPLUS/DEFICIT
FIGURE 2: MILLIMAN 100 PENSION FUNDING INDEX — PENSION FUNDED RATIO
2022-2023 projections
If the Milliman 100 PFI companies were to achieve the expected 5.9% median asset return (as per the 2022 PFS), and if the current discount rate of 5.71% were maintained during 2022 and 2023, we forecast that the funded status of the surveyed plans would increase. This would result in a projected pension surplus of $165 billion (funded ratio of 113.1%) by the end of 2022 and a projected pension surplus of $182 billion (funded ratio of 114.6%) by the end of 2023. For purposes of this forecast, we have assumed 2022 and 2023 aggregate annual contributions of $20 billion.
Under an optimistic forecast with rising interest rates (reaching 5.81% by the end of 2022 and 6.41% by the end of 2023) and asset gains (9.90% annual returns), the funded ratio would climb to 115% by the end of 2022 and to 129% by the end of 2023. Under a pessimistic forecast with similar interest rate and asset movements (5.61% discount rate at the end of 2022 and 5.01% by the end of 2023 and 1.90% annual returns), the funded ratio would decline to 111% by the end of 2022 and 101% by the end of 2023.
MILLIMAN 100 PENSION FUNDING INDEX — OCTOBER 2022 (ALL DOLLAR AMOUNTS IN MILLIONS)
PENSION ASSET AND LIABILITY RETURNS
About the Milliman 100 monthly Pension Funding Index
For the past 22 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 2021 fiscal year and for previous fiscal years. This pension plan accounting disclosure information was summarized as part of the Milliman 2022 Pension Funding Study, which was published on April 28, 2022. 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.