The funded status of the 100 largest U.S. corporate defined benefit pension plans increased by $5 billion during October, 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 plan liabilities, which outweighed plan asset losses due to declining markets during October. As of October 31, the funded ratio climbed to 104.2%, from 103.6% at the end of September, reaching a new high for the year. The funded status surplus increased to $50 billion.
October’s investment return of -2.68% marked the third straight month of negative asset returns. The Milliman 100 PFI asset value dropped by $40 billion in October, to $1.229 trillion. 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.
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Note: Numbers may not add up precisely due to rounding
The combined plans’ projected benefit obligation fell by $45 billion during October, decreasing the Milliman 100 PFI value to $1.179 trillion from $1.224 trillion at the end of September. The change resulted from a 36-basis-point (bps) jump in the monthly discount rate to 6.20% for October, from 5.84% in September. Discount rates have soared 100 bps over the last four months and have not been this high since May 2009.
Over the last 12 months, from November 2022 to October 2023, the cumulative asset return for these pension plans has been 1.05%, and the Milliman 100 PFI funded status position has declined by $28 billion. The funded status drop is primarily the result of poor investment returns partially offset by net increases in discount rates over the past 12-month period. Discount rates increased by 49 bps to 6.20% from 5.71% one year ago. The funded ratio of the Milliman 100 companies has decreased over the past 12 months, from 106.2% to 104.2%.
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% annualized average asset return (as per the 2023 PFS) for the remaining months of 2023 prorata, and then for all of 2024, and if the current discount rate of 6.20% was maintained for the rest of 2023 and 2024, we forecast that the funded status of the surveyed plans will increase. The funded status is projected to rise to a surplus of $51 billion (funded ratio of 104.4%) by the end of 2023 and to $61 billion (funded ratio of 105.2%) 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 6.30% by the end of 2023 and 6.90% by the end of 2024) and annualized asset returns of 9.8% per year, the funded ratio would climb to 106% by the end of 2023 and 118% by the end of 2024. Under a pessimistic forecast with similar interest rate and asset movements (6.10% discount rate at the end of 2023 and 5.50% by the end of 2024 and 1.8% annualized returns), the funded ratio would decline to 103% by the end of 2023 and 93% by the end of 2024.
Milliman 100 Pension Funding Index - October 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.