The funded status of the 100 largest corporate defined benefit pension plans increased by $31 billion during September 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, representing a gain of $31 billion for the month. As of September 30, the funded ratio shot upward to 109.2%, from 106.3% at the end of August, and the funded status surplus increased to $122 billion.
The investment loss of 5.24% in September was the worst asset return month of the year and lowered the Milliman 100 PFI asset value by $87 billion to $1.438 trillion. By comparison, the 2022 Milliman Pension Funding Study (PFS) reported that the monthly median expected investment return during 2021 was 0.48% (5.9% annualized). The full results of the annual 2022 study can be found at www.milliman.com/pfs.
The combined plans’ projected benefit obligation fell by $118 billion during September, decreasing the Milliman 100 PFI value to $1.316 trillion from $1.434 trillion at the end of August. The change resulted from a large increase of 75 basis points in the monthly discount rate to 5.36% for September, from 4.61% in August. The last time discount rates changed by more than 75 basis points was in October 2008. Discount rates have not been this high since June 2011.
Highlights
| $ BILLION | ||||
| MV | PBO | FUNDED STATUS | FUNDED PERCENTAGE | |
|---|---|---|---|---|
| AUGUST | 1,524 | 1,434 | 90 | 106.3% |
| SEPTEMBER | 1,438 | 1,316 | 122 | 109.2% |
| MONTHLY CHANGE | (87) | (118) | +31 | 2.9% |
| YTD CHANGE | (348) | (508) | +160 | 11.3% |
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
Third-quarter summary
During the quarter ended September 30, 2022, the funded status surplus for the Milliman 100 PFI improved by $36 billion. July had a $13 billion funded status loss due to a drop in the discount rate for that month, while August and September posted funded status gains as discount rates reversed course and continued their upward trend, as seen for most of 2022. Assets returns in July were positive, but August and September returns were significantly below expectations as the net loss in the third quarter was $89 billion. With discount rates being the leading driver of funded status improvement, the funded ratio of the Milliman 100 companies improved to 109.2% at the end of September from 105.9% at the end of June.
Over the last 12 months, from October 2021 to September 2022, the cumulative asset loss for these pension plans has been 13.63%, and yet the Milliman 100 PFI funded status position has improved by $199 billion. The funded status gain is primarily the result of significant increases in discount rates over the past 12-month period. Discount rates increased by 258 basis points to 5.36% from 2.78% one year ago. The funded ratio of the Milliman 100 companies has significantly increased over the past 12 months, to 109.2% from 95.8%.
2022-2023 projections
If the Milliman 100 PFI companies were to achieve the expected 5.9% median asset return (as per the 2022 PFS), and if the current discount rate of 5.36% 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 $126 billion (funded ratio of 109.6%) by the end of 2022 and a projected pension surplus of $144 billion (funded ratio of 111.1%) by the end of 2023. For purposes of this forecast, we have assumed 2022 and 2023 aggregate annual contributions of $20 billion.
Under an optimistic forecast with rising interest rates (reaching 5.51% by the end of 2022 and 6.11% by the end of 2023) and asset gains (9.90% annual returns), the funded ratio would climb to 113% by the end of 2022 and to 126% by the end of 2023. Under a pessimistic forecast with similar interest rate and asset movements (5.21% discount rate at the end of 2022 and 4.61% by the end of 2023 and 1.90% annual returns), the funded ratio would decline to 107% by the end of 2022 and 97% by the end of 2023.
MILLIMAN 100 PENSION FUNDING INDEX — SEPTEMBER 2022 (ALL DOLLAR AMOUNTS IN MILLIONS)
PENSION ASSET AND LIABILITY RETURNS
About the Milliman 100 monthly Pension Funding Index
For the past 22 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 2021 fiscal year and for previous fiscal years. This pension plan accounting disclosure information was summarized as part of the Milliman 2022 Pension Funding Study, which was published on April 28, 2022. 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.