US Corporate Pension Funded Ratio Climbs to 92.9% in February

Funding for the 100 largest US corporate pension plans, as tracked by the Milliman 100 Pension Funding Index, improved by $67 billion in February as the plans’ aggregate funded ratio rose to 92.9% from 89.7%, thanks to a 26 basis point increase in the monthly discount rate. It was the fifth straight month funded ratios have improved.

A paltry investment gain of 0.13% during the month led to a $2 billion decline in the aggregate market value of plans to $1.733 trillion as of Feb. 28, while pension liabilities decreased to $1.866 trillion at the end of February from $1.935 trillion at the end of January.

During the 12 month-period between March 2020 and February 2021, the cumulative asset return for the plans was 11.82%, which helped the funded status deficit of the plans improve by $197 billion. Meanwhile, the funded ratio of the plans rose sharply during the same time period to 92.9% from 83%.

“The funded ratio for corporate pensions has climbed by nearly 10 percentage points over the past 12 months,” Zorast Wadia, author of the Milliman 100 PFI, said in a statement. “We’re finally seeing some good discount rate news for these plans, making up for the poor investment returns over the past two months.”

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Milliman projects that if the 100 plans in its index were to earn the expected 6.5% median asset return, and if the current discount rate of 2.88% was maintained through 2022, the plans’ funded status would increase to 96.3% by the end of 2021, and 100.7% by the end of 2022. The forecast assumes 2021 and 2022 aggregate annual contributions of $50 billion.

Under an optimistic forecast that assumes the plans will earn average annual asset returns of 10.5%, with interest rates will rising to 3.38% by the end of 2021 and 3.98% by the end of 2022, Milliman forecasts the funded ratio would climb to 106% by the end of 2021 and 125% by the end of 2022. However, under a pessimistic forecast that assumes 2.5% annual returns with the discount rate falling to 2.38% at the end of 2021 and 1.78% by the end of 2022, the funded ratio would drop to 87% by the end of 2021 and 80% by the end of 2022.