Corporate pension funded status drops by $2 billion in May

Milliman presents both an optimistic and pessimistic forecast of what lies ahead for those plans’ funded status.

Milliman’s pessimistic forecast looks rather different, anticipating a 3.64 percent discount rate at the end of 2018 and a rate of 3.03 percent by the end of 2019, as well as 2.8 percent annual returns. (Photo: Shutterstock)

There was good news, and there was bad news for corporate pensions’ funded status last month.

While there was a four-point decrease in the monthly discount rate—the bad news—market gains mostly offset it, although the end result was still a drop in funded status of $2 billion for the month.

According to the latest Pension Funding Index from consulting and actuarial firm Milliman, Inc., the 100 largest U.S. corporate pension plans saw an unchanged funded ratio at 91.6 percent as of May 31.

“Sometimes no news is good news for corporate pensions,” Zorast Wadia, coauthor of the Milliman 100 PFI, is quoted saying. Wadia adds, “May’s 0.73 percent investment gain exceeded monthly expectations, and helped balance out the month’s modest decrease in corporate bond rates.”

According to the analysis, from April 30, 2018 through May 31st, plans in the Index saw an asset value increase of $7 billion, but at the same time projected benefit obligations rose by $9 billion.

That increased the deficit from $139 billion to $141 billion for the month. Over the last year, from June of 2017 to the end of May 2018, the Milliman 100 PFI funded status deficit has improved by $116 billion.

Milliman presents both an optimistic and pessimistic forecast of what lies ahead for those plans’ funded status.

Under the optimistic forecast, which anticipates rising interest rates—which it expects to hit 4.34 percent by the end of 2018 and 5.03 percent by the end of 2019—and also anticipates 10.8 percent annual returns on assets, it forecasts a rise in the funded ratio of 100 percent by the end of 2018 and 116 percent by the end of 2019.

Its pessimistic forecast, as one might expect, looks rather different. That anticipates a 3.64 percent discount rate at the end of 2018 and a rate of 3.03 percent by the end of 2019, as well as 2.8 percent annual returns. Under that scenario, says Milliman, the funded ratio would decline to 87 percent by the end of 2018 and 81 percent by the end of 2019.