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A Happy Start to the New Year for Pension Funding

Practice Management

The 100 largest corporate pension plans’ funded status improved in the first month of 2019, Milliman reports.

In a recent analysis, Milliman says that its Milliman 100 Pension Funding Index shows that the funding of the 100 largest corporate pension plans improved by $19 billion in January. That translates to a 91% funding ratio, 1.3 percentage points higher than December’s level.

More dramatic was the improvement in asset returns. In what it termed a “dismal 4th quarter” of 2018, MIlliman reports, the cumulative return was -4.34%. But January’s asset return was +3.35%, and improvement of 7.69 percentage points.

Milliman also reported good news regarding the market value of assets; however, the projected benefit obligations — that is, pension liabilities — also grew:

 

Gauge December 2018 January 2019 Change
Market Value of Assets $1.459 trillion $1.505 trillion +$46 billion
Projected Benefit Obligations $1.626 trillion $1.653 trillion +$27 billion

 

Milliman is optimistic about the 2019. It says that if the companies in their index met its expectation of a 6.8% asset return and a 4.06% discount rate comes to fruition and is maintained this year and in 2020, it would yield the following results:

 

Gauge By Dec. 31, 2019 By Dec. 31, 2020
Projected Pension Deficit $93 billion $30 billion
Funded Ratio 104% 121%

 

But Milliman also addresses how things would stand if the converse is true. It projects that if asset return is 2.8% and the discount rates are 3.51% at the end of 2019 and 2.91% by New Year’s Eve of 2020, then the funded ratio would actually decline — to 85% by Dec. 31, 2019 and 79% one year later.