Milliman 100 PFI funded ratio dips to 103.2 percent, driven by falling discount rates
Global consulting and actuarial firm Milliman has released the latest findings of its Milliman 100 Pension Funding Index (PFI), analyzing the 100 largest corporate pension plans in the US.
The Milliman 100 PFI funded ratio dipped from 104.1 percent in October to 103.2 percent by November 30, primarily due to a significant 65-basis-point drop in discount rates during the month. Discount rates fell from 6.20 percent in October to 5.55 percent in November, which is notably the largest monthly decline since 2008, and led to an $82 billion increase in plan liabilities.
Despite a 6.53 percent monthly investment gain, the largest of 2023, helping offset some liability losses, plan assets' market value rose by $74 billion to $1.302 trillion. In contrast, the 2023 Milliman Pension Funding Study (PFS) stated that the anticipated monthly investment return in 2022 was 0.47 percent, equivalent to an annualized rate of 5.8 percent.
The funded status of the PFI plans decreased by $8 billion, bringing the PFI surplus down to $41 billion.
“November saw both the largest monthly investment return and the largest discount rate drop of the year. Although these mostly offset each other, the discount rate change was slightly more dominant, resulting in the funded ratio decline. All eyes will be on where interest rates and plan asset values end up in December, as this will lay the foundation for 2024 pension calculations for calendar-year plans,” says Zorast Wadia, principal and consulting actuary with the New York office of Milliman and principal author of the PFI.
Predictions for 2024-2025
Assuming the Milliman 100 PFI companies achieve the anticipated 5.8 percent median asset return, based on the 2023 PFS, and maintaining the current discount rate of 5.55 percent from the last month of 2023 through the end of 2025, projections indicate an improvement in the funded status of the surveyed plans.
This would lead to an estimated pension surplus of $57 billion (funded ratio of 104.6 percent) by the close of 2024 and a projected pension surplus of $72 billion (funded ratio of 105.8 percent) by the close of 2025. In this forecast, Milliman considered aggregate annual contributions of $25 billion for 2024 and 2025.
Looking ahead, an optimistic forecast with rising interest rates and asset gains could see the funded ratio climb to 117 percent by the end of 2024 and 131 percent by the end of 2025. Conversely, a pessimistic forecast with lower discount rates and modest annual returns could lead to a decline, with the funded ratio reaching 93 percent by the end of 2024 and 85 percent by the end of 2025.
