Investment gains and higher discount rates increase US pension funded ratio for third month in a row
Corporate US pension funding status improved for the third month in July, says Milliman in its Milliman US 100 Pension Funding Index (PFI). The PFI analyzes the 100 largest US corporate pension plans.
During July, the Milliman US 100 PFI funding ratio rose from 102.5% at the end of June to 103.6% as of July 31. This increase was partly due to a five-basis-point rise in monthly discount rates, from 5.20% in June to 5.25% in July, which lowered the plans' projected benefit obligation by $9 billion to $1.307 trillion. July's investment return of 0.84% also contributed to the plans' improved funding status, boosting the PFI plan assets by $5 billion, to $1.354 trillion as of July 31.
“July was a win-win for pension funding,” says Zorast Wadia, author of the PFI. “Investment returns were better than expected, while the higher discount rates meant that liabilities declined, leading to a funded status improvement of $14 billion.”
Looking forward, under an optimistic forecast with rising interest rates (reaching 5.50% by the end of 2023 and 6.10% by the end of 2024) and asset gains (9.8% annual returns), the funded ratio would climb to 109% by the end of 2023 and 122% by the end of 2024. Under a pessimistic forecast (5.00% discount rate at the end of 2023 and 4.40% by the end of 2024 and 1.8% annual returns), the funded ratio would decline to 100% by the end of 2023 and 91% by the end of 2024.
