The funded status of the 100 largest corporate defined benefit pension plans rose to 94.5% during September from 93.3% at the end of August, its highest level in a decade, according to consulting firm Milliman.

The latest data from the Milliman 100 Pension Funding Index (PFI) shows that the pension plans experienced a $21 billion increase in funding as a result of an increase in the benchmark corporate bond interest rates used to value pension liabilities.

The last time the Milliman 100 funding ratio was higher than it is now was just before the financial crisis when the funded ratio was 99.4%.

“September’s funded ratio marks a 10-year high and is the closest these plans have been to being fully funded since September 2008,” Zorast Wadia, co-author of the Milliman PFI, said in a release. “But the improvement is overshadowed by the market losses experienced over the past couple days, which could very well lead to a reversal of these funding gains.” 

From the end of August to the end of September, the monthly discount rate rose 13 basis points to 4.18% from 4.05%, causing the projected benefit obligation (PBO) for the plans to fall by $27 billion. However, this was offset by a $6 billion decrease from investment losses.

The market value of assets declined by $6 billion as a result of September’s 0.14% investment loss to $1.540 trillion, from $1.546 trillion at the end of August. By comparison, the 2018 Milliman Pension Funding Study reported that the monthly median expected investment return during 2017 was 0.55%, which is 6.8% on an annualized basis.

Meanwhile, the funded status deficit improved by $31 billion, which was attributed to above-average investment returns and interest rate gains during the quarter. Asset gained 1.92% in the third quarter and discounts rates increased by six basis points. The funded ratio of the Milliman 100 companies was 92.7% at the end of the second quarter.

Milliman said that under an optimistic forecast, which would see interest rates rise to 4.33% by the end of 2018, and 4.93% by the end of 2019, with 10.8% annual returns on assets, the funded ratio would climb to 98% by the end of 2018 and 114% by the end of 2019.  But under a pessimistic forecast, with a 4.03% discount rate at the end of 2018, and 3.43% by the end of 2019, with 2.8% annual returns, the funded ratio would decline to 93% by the end of 2018, and 85% by the end of 2019.

According to Milliman, corporate plan sponsors contributed $62 billion to their plans in fiscal year 2017, brining the year’s total assets to a record $1.55 trillion. That was 45% more than the $42.6 billion contributed in 2016, with 17 of the employers contributing at least $1 billion, and seven contributing more than $2 billion.

Tags: corporate defined benefit, Funded Status, Pension Plan