Milliman analysis: Corporate pension funded ratio hits 105.2%, with 82 basis point rate increase during Q1 2022

Milliman 100 PFI funded status improves by $92 billion in Q1

The funded status of the 100 largest corporate defined benefit pension plans rose by $43 billion during March as measured by the Milliman 100 Pension Funding Index (PFI). The funded status surplus improved to $86 billion from $43 billion at the end of February 2022 thanks to liability gains, which improved due to an increase in the benchmark corporate bond interest rates used to value pension liabilities. As of March 31, the funded ratio rose to 105.2%, up from 102.5% at the end of February. March’s increase caps an impressive first quarter of 2022 which saw a $92 billion improvement in funded status. This is the highest funded ratio recorded by the PFI in nearly 15 years – since the end of 2007.

The Milliman 100 PFI asset value fell by $16 billion to $1.738 trillion at the end of March due to investment losses of 0.56%. By comparison, the 2021 Milliman Pension Funding Study reported that the monthly median expected investment return during 2020 was 0.50% (6.2% annualized).

The projected benefit obligation (PBO), or pension liabilities, decreased to $1.652 trillion at the end of March. The change resulted from an increase of 26 basis points in the monthly discount rate to 3.62% for March from 3.36% for February 2022. March caps off the fourth consecutive month of discount rate increases.

First Quarter 2022 Summary

For the quarter ending March 31, 2022, assets fell by $105 billion while plan liabilities decreased by $197 billion. Despite investments posting losses of 4.75% during the first quarter of 2022, discount rates rose 82 basis points and helped propel the funded status improvement, which totaled $92 billion by the end of the first quarter. The funded ratio of the Milliman 100 companies improved to 105.2% at the end of March from 99.7% at the beginning of 2022.

Over the last 12 months (Apr. 2021 – Mar. 2022), the cumulative asset return for these pensions has been 3.39% and the Milliman 100 PFI funded status surplus has improved by $119 billion. Discount rate increases are the main driver of the funded status improvement. The funded ratio of the Milliman 100 companies has increased to 105.2% from 98.2% over the past 12 months.

The projected asset and liability figures presented in this analysis will be adjusted as part of our annual 2022 Pension Funding Study (PFS), where pension settlement and annuity purchase activities that occurred during 2021 will be reflected. Pension plan accounting information disclosed in the footnotes of the Milliman 100 companies’ annual reports for the 2021 fiscal year is expected to be available during the first quarter of 2022 and will also be part of the 2022 PFS. We expect to publish our comprehensive recap later this month.

Note: Numbers may not add up precisely due to rounding

FIGURE 1: MILLIMAN 100 PENSION FUNDING INDEX — PENSION SURPLUS/DEFICIT

FIGURE 2: MILLIMAN 100 PENSION FUNDING INDEX — PENSION FUNDED RATIO

 

2022-2023 projections

If the Milliman 100 PFI companies were to achieve the expected 6.2% median asset return (as per the 2021 PFS), and if the current discount rate of 3.62% were maintained during 2022 and 2023, we forecast that the funded status of the surveyed plans would increase. This would result in a projected pension surplus of $124 billion (funded ratio of 107.6%) by the end of 2022 and a projected pension surplus of $177 billion (funded ratio of 110.9%) by the end of 2023. For purposes of this forecast, we have assumed 2022 and 2023 aggregate annual contributions of $28 billion.

Under an optimistic forecast with rising interest rates (reaching 4.07% by the end of 2022 and 4.67% by the end of 2023) and asset gains (10.2% annual returns), the funded ratio would climb to 117% by the end of 2022 and 135% by the end of 2023. Under a pessimistic forecast with similar interest rate and asset movements (3.17% discount rate at the end of 2022 and 2.57% by the end of 2023 and 2.2% annual returns), the funded ratio would decline to 98% by the end of 2022 and 90% by the end of 2023.

MILLIMAN 100 PENSION FUNDING INDEX — MARCH 2022 (ALL DOLLAR AMOUNTS IN MILLIONS)

 

PENSION ASSET AND LIABILITY RETURNS

About the Milliman 100 monthly Pension Funding Index

For the past 21 years, Milliman has conducted an annual study of the 100 largest defined benefit pension plans sponsored by U.S. public companies. The Milliman 100 Pension Funding Index projects the funded status for pension plans included in our study, reflecting the impact of market returns and interest rate changes on pension funded status, utilizing the actual reported asset values, liabilities, and asset allocations of the companies’ pension plans.

The results of the Milliman 100 Pension Funding Index were based on the actual pension plan accounting information disclosed in the footnotes to the companies’ annual reports for the 2020 fiscal year and for previous fiscal years. This pension plan accounting disclosure information was summarized as part of the Milliman 2021 Pension Funding Study, which was published on April 7, 2021. In addition to providing the financial information on the funded status of U.S. qualified pension plans, the footnotes may also include figures for the companies’ nonqualified and foreign plans, both of which are often unfunded or subject to different funding standards than those for U.S. qualified pension plans. They do not represent the funded status of the companies’ U.S. qualified pension plans under ERISA.