Milliman analysis: Corporate pensions improve by $93 billion in August, second-largest monthly increase in 20 years

Milliman 100 PFI funded ratio jumps from 81.1% to 85.1% during August

Milliman, Inc., a premier global consulting and actuarial firm, today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans.

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In August, corporate pensions experienced the second-largest monthly funding increase in the past two decades, with a funded status improvement of $93 billion. In the 20-year history of the PFI, only July 2003’s monthly increase of $203.8 billion was higher. Discount rates for the month jumped 28 basis points, from 2.26% at the end of July to 2.54% as of August 31, lowering the Milliman 100 PFI deficit to $293 billion. These plans saw a monthly asset gain of 0.94%, which increased the PFI asset value by $11 billion. As of August 31, the funded ratio for these plans rose to 85.1%, up from 81.1% at the end of July, reversing declines experienced during the previous four months.

“August was a great month for corporate pensions, as discount rates finally increased and the market value of assets improved as well – the fifth straight month of above-average investment returns,” said Zorast Wadia, author of the Milliman 100 PFI. “The fact that the funded status improved by a near-record-setting amount of $93 billion only serves to underline how the low-discount rate environment has been a drag on these pensions in 2020.”

Looking forward, under an optimistic forecast with rising interest rates (reaching 2.74% by the end of 2020 and 3.34% by the end of 2021) and asset gains (10.5% annual returns), the funded ratio would climb to 90% by the end of 2020 and 105% by the end of 2021.  Under a pessimistic forecast (2.34% discount rate by the end of 2020 and 1.74% by the end of 2021 and 2.5% annual returns), the funded ratio would decline to 83% by the end of 2020 and 76% by the end of 2021.

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