The funded status of the 100 largest U.S. corporate defined benefit pension plans increased by $4 billion during September, 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, which outweighed plan asset losses due to declining markets during the month. As of September 30, the funded ratio inched upward to 103.6%, from 103.1% at the end of August, and the funded status surplus increased to $44 billion.
September’s investment loss of 3.73% was the worst asset return month of the year and lowered the Milliman 100 PFI asset value by $55 billion to $1.269 trillion. 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 annual study can be found at www.milliman.com/pfs.
The combined plans’ projected benefit obligation fell by $60 billion during September, decreasing the Milliman 100 PFI value to $1.224 trillion from $1.284 trillion at the end of August. The change resulted from a 43-basis-point (bps) jump in the monthly discount rate, to 5.84% for September, from 5.41% in August. The last time discount rates increased by more than 43 bps was exactly one year ago, in September 2022. Discount rates have not been this high since March 2010.
Highlights
| $ BILLION | FUNDED PERCENTAGE | |||
|---|---|---|---|---|
| MV | PBO | FUNDED STATUS | ||
| August | 1,324 | 1,284 | 40 | 103.1% |
| September | 1,269 | 1,224 | 44 | 103.6% |
| Monthly change | (55) | (60) | +4 | 0.5% |
| YTD Change | (79) | (99) | +20 | 1.7% |
Note: Numbers may not add up precisely due to rounding
Third-quarter summary
During the quarter ended September 30, 2023, the funded status surplus for the Milliman 100 PFI improved by $12 billion. August had a $6 billion funded status loss due to poor asset returns that month, while July and September posted funded status gains as discount rates continued their upward trend. Asset returns in July were positive, but August and September returns were significantly below expectations. With discount rates being the leading driver of funded status improvement, the funded ratio of the Milliman 100 companies improved to 103.6% at the end of September from 102.5% at the end of June.
Over the last 12 months, from October 2022 to September 2023, the cumulative asset return for these pension plans has been 4.42%, and the Milliman 100 PFI funded status position has improved by $9 billion. The funded status gain is primarily the result of net increases in discount rates over the past 12-month period. Discount rates increased by 48 bps to 5.84% from 5.36% one year ago. The funded ratio of the Milliman 100 companies has increased over the past 12 months, to 103.6% from 102.7%.
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 5.84% were maintained during 2023 and 2024, we forecast that the funded status of the surveyed plans will increase. The funded status is projected to rise to a surplus of $48 billion (funded ratio of 103.9%) by the end of 2023 and to $60 billion (funded ratio of 105.0%) 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 5.99% by the end of 2023 and 6.59% by the end of 2024) and asset returns of 9.8% per year, the funded ratio would climb to 107% by the end of 2023 and 119% by the end of 2024. Under a pessimistic forecast with similar interest rate and asset movements (5.69% discount rate at the end of 2023 and 5.09% by the end of 2024 and 1.8% annual returns), the funded ratio would decline to 101% by the end of 2023 and 92% by the end of 2024.
Milliman 100 Pension Funding Index - September 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.