The funded status of the 100 largest U.S. corporate defined benefit pension plans improved by $15 billion during May, as measured by the Milliman 100 Pension Funding Index (PFI). An increase in the benchmark corporate bond interest rates used to value pension liabilities led to a decrease in these liabilities of $41 billion for the month. As of May 31, the funded ratio rose to 100.7%, from 99.6% at the end of April. During May, a funding deficit at the beginning of the month changed to a funding surplus of $9 billion by month’s end.
The market value of assets declined by $26 billion during the period because of May’s -1.49% investment return. The Milliman 100 PFI asset value decreased to $1.329 trillion as of May 31, 2023, from $1.355 trillion as of April 30, 2023. By comparison, the 2023 Milliman Pension Funding Study (PFS) reported that the monthly expected investment return during 2022 was 0.47% (5.8% annualized). The full results of the annual 2023 study can be found at www.milliman.com/pfs.
The Milliman 100 PFI projected benefit obligation decreased by $41 billion during May to $1.320 trillion. The change resulted from an increase of 27 basis points (bps) in the monthly discount rate, to 5.19% for May from 4.92% in April.
Over the last 12 months (June 2022 – May 2023), the cumulative asset return for these pension plans has been -1.56% and the Milliman 100 PFI funded status position has declined by $45 billion. The funded status drop is primarily due to poor asset returns. Discount rates experienced a net increase of 85 bps to 5.19% from 4.34% one year ago. The funded ratio of the Milliman 100 companies has dropped over the past 12 months, to 100.7% from 103.7%.
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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
If the Milliman 100 PFI companies were to achieve the expected 5.8% average asset return (as per the 2023 PFS), and if the current discount rate of 5.19% were maintained during 2023 and 2024, we forecast that the funded status of the surveyed plans would increase. The funded status is projected to rise to a surplus of $20 billion (funded ratio of 101.5%) by the end of 2023 and to $38 billion (funded ratio of 102.9%) by the end of 2024. For purposes of this forecast, we have assumed 2023 and 2024 aggregate annual contributions of $25 billion.
Under an optimistic forecast with rising interest rates (reaching 5.54% by the end of 2023 and 6.14% by the end of 2024) and asset returns of 9.8% per year, the funded ratio would climb to 108% by the end of 2023 and 121% by the end of 2024. Under a pessimistic forecast with similar interest rate and asset movements (4.84% discount rate at the end of 2023 and 4.24% by the end of 2024 and 1.8% annual returns), the funded ratio would decline to 95% by the end of 2023 and 87% by the end of 2024.
Milliman 100 Pension Funding Index - May 2023 (all dollar amounts in millions)
Pension asset and liability returns
About the Milliman 100 monthly Pension Funding Index
For the past 23 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 2022 fiscal year and for previous fiscal years. This pension plan accounting disclosure information was summarized as part of the Milliman 2023 Pension Funding Study, which was published on April 20, 2023. 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.