Milliman Analysis: Corporate Pension Funding Plummets by $65B in May

Staff Report

Thursday, June 13th, 2019

Milliman, Inc., a premier global consulting and actuarial firm, released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In May, these pensions experienced a $65 billion decrease in funded status, a precipitous drop that resulted from poor investment returns and a decrease in the benchmark corporate bond interest rates used to value pension liabilities. May saw a negative 0.74% investment return, resulting in a $15 billion decrease to the market value of assets for PFI plans. Discount rates also dropped in May, declining 24 basis points from 3.85% at the end of April to 3.61% as of May 31. Pension liabilities grew by $50 billion as a result. The funding ratio of the Milliman 100 PFI during May plummeted from 91.4% down to 87.9%.

"May was a dismal month for corporate pensions, hitting plans with a double-whammy of poor equity returns and declining discount rates," said Zorast Wadia, co-author of the Milliman 100 PFI. "In fact, May's heavy losses bring pension funding lower than where it was at the start of 2019, and mark the third largest monthly funding decline in the past five years. Only January 2015 (at $97 billion) and December 2018 (at $70 billion) had worse outcomes."

Looking forward, under an optimistic forecast with rising interest rates (reaching 3.96% by the end of 2019 and 4.56% by the end of 2020) and asset gains (10.6% annual returns), the funded ratio would climb to 96% by the end of 2019 and 111% by the end of 2020.  Under a pessimistic forecast (3.26% discount rate at the end of 2019 and 2.66% by the end of 2020 and 2.6% annual returns), the funded ratio would decline to 84% by the end of 2019 and 77% by the end of 2020.