Corporate Pensions Reap Largest Gains in September

US corporate pension plans saw their largest growth year-to-date in September with a $26 billion increase in funded status, raising their funded ratio to 84.3% from 83% during the month, according to consulting and actuarial firm Milliman.

According to Milliman’s most recent Pension Funding Index (PFI), which analyzes the 100 largest US corporate pension plans, the deficit fell to $272 billion due to interest rate and market value gains in September.

“While September’s positive performance is welcome news for these pensions, it’s tempered somewhat by the recent release of the new mortality tables by the IRS,” said Zorast Wadia, co-author of the Milliman 100 PFI, in a statement. “Much of the fourth quarter will be spent in anticipation of how the new regulation will affect 2018 cash contribution funding, PBGC premiums, and de-risking efforts.”

The Milliman 100 PFI asset value grew by $6 billion as a result of September’s 0.78% investment gain to $1.465 trillion, with cumulative year-to-date investment gains of 8.34%. In contrast, the 2017 Milliman Pension Funding Study reported that the monthly median expected investment return during 2016 was 0.57%, or 7% on an annualized basis.

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The projected benefit obligation (PBO), or pension liabilities, decreased to $1.737 trillion at the end of September from $1.757 trillion at the end of August. The change resulted from an increase of nine basis points in the monthly discount rate to 3.69% for September from 3.60% for August.

For Q3, Milliman reported that the funded status of the 100 largest US corporate pension plans improved by $13 billion, primarily due to September’s gains.

Milliman also reported that between October 2016 and September 2017, the cumulative asset return for the 100 largest pensions was 8.30%, while the Milliman 100 PFI funded status deficit improved by $129 billion. During that time, rates rose to 3.69% from 3.42%, while the funded ratio of the Milliman 100 companies grew to 84.3% from 77.9%.

“This bit of positive news comes on the heels of the release of the new mortality tables regulation by the IRS,” said Milliman. “The new mortality tables will affect 2018 cash contribution funding, Pension Benefit Guaranty Corporation (PBGC) premiums, and pension risk transfers via lump-sum payments.”

Milliman said that under an “optimistic forecast,” in which interest rates rise to 3.84% by the end of 2017, and 4.44% by the end of 2018, with 11% annual returns, the funded ratio would climb to 87% by the end of 2017 and 101% by the end of 2018. However, a pessimistic forecast that anticipates a 3.54% discount rate at the end of 2017, and 2.94% by the end of 2018, with only 3% annual returns, would see the funded ratio decline to 83% by the end of 2017, and to 76% by the end of 2018.

Tags: Corporate Pension, Milliman, Pension

Duke University’s long-term pool, the primary investment vehicle for its endowment assets, earned a 12.7% investment return for the fiscal year ending June 30, pushing the endowment’s value to an all-time high of $7.9 billion.

The 2017 results outperformed the fund’s returns from last year, a 2.6% loss for the year ending on June 30, 2016. During that time, the MSCI All Country World Index was down 3.7%, and the Barclays Capital Aggregate Index gained 6%. However, this year’s returns were just short of the broad universe of US colleges and universities, which generated a median 12.9 % during the same period, according to Cambridge Associates.

Further details of the fund’s performance have yet to be disclosed.

The university’s investment company, Duke University Management Company’s (DUMAC) goal is for the long-term pool to earn an annualized real rate of return of at least 5.0% net of fees to fund the university’s spending, and to allow for growth of the endowment after factoring in inflation. Over the past 10 years, the average annual return on the long-term pool has been 6%.

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One of the fund’s long-term benchmark is a composite of 70% MCSI All Country World Index and 30% Barclays Capital Aggregate Index. The MCSI index represents the broad global equity market, and the Barclays index represents the domestic bond market. The firm said it chose the mix between equity and bonds because a 70% exposure to equity investments historically has achieved the university’s 5.0% real annual return objective over the long term.

The endowment’s main peer benchmark is the Cambridge Associates Universe. DUMAC seeks to achieve performance over successive rolling three-, five-, and 10-year periods in excess of the median return for the benchmark.

Tags: Duke University, Endowments, Fiscal Year

Duke Endowment Returns 12.7%, Hits All-Time High