Milliman, an investment consultant, has released the results of its latest Pension Funding Index, which analyzes the 100 largest U.S. corporate pension plans. In June, these pensions experienced a $23 billion increase in funded status, with the deficit of the Milliman 100 PFI plans falling from $141 billion at the end of May to $118 billion, as of June 30. The improvement was due to an increase in the benchmark corporate bond interest rates used to value pension liabilities, which saw discount rates increase by 13 basis points from 3.99% to 4.12% over the same time period, according to the firm. The funded ratio for the Milliman 100 PFI jumped to 92.8% as of June 30 and would have been higher had it not been for June’s poor investment returns of -0.09%.
June’s -0.09% investment return caused the Milliman 100 PFI asset value to decline from $1.531 trillion at the end of May to $1.526 trillion as of June 30. By comparison, the 2018 Milliman Pension Funding Study reported that the monthly median expected investment return during 2017 was 0.55%. The projected benefit obligation decreased by $28 billion during June, lowering the Milliman 100 PFI value to $1.644 trillion. Looking forward, under an optimistic forecast with rising interest rates and asset gains, the funded ratio would climb to 100% by the end of 2018 and 116% by the end of 2019, the report continued. Under a pessimistic forecast, the funded ratio would decline to 89% by the end of 2018 and 83% by the end of 2019.
Looking at a larger grouping, the estimated aggregate funding level of pension plans sponsored by the S&P 1500 companies remained level at 89% in June 2018, as a result of an increase in discount rates which was offset by losses in international equity markets, according to Standard & Poor’s Capital IQ. As of June 30, 2018, the estimated aggregate deficit of $229 billion decreased by $16 billion as compared to the $245 billion measured at the end of May according to Mercer.
The S&P 500 index increased 0.5 percent and the MSCI EAFE Index decreased 1.4 percent in June. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased by 8 basis points to 4.14 percent. The estimated aggregate value of pension plan assets of the S&P 1500 companies as of May 31, 2018 was $1.95 trillion, compared with estimated aggregate liabilities of $2.19 trillion. Allowing for changes in financial markets through June 30, 2018, changes to the S&P 1500 constituents and newly released financial disclosures, at the end of June, the estimated aggregate assets were $1.93 trillion, compared with the estimated aggregate liabilities of $2.16 trillion.