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Research

Largest US Corporate Pension Plans Funded Ratio Rises to 92.8% in June

Despite investment loss, deficit of 100 largest corporate plans fell $23 billion.

By Michael Katz

The 100 largest US corporate pension plans saw a $23 billion increase in funded status in June as their aggregate deficit fell to $118 billion from $141 billion at the end of May, according to consulting firm Milliman.

Meanwhile, the aggregate funding level of those pension plans increased to 92.8% as of June 30, from 91.6% at the end of May, despite registering an investment loss of 0.09% for the month. By comparison, the monthly median expected investment return during 2017 was 0.55% (6.8% annualized). Milliman attributed the improvement to an increase in the benchmark corporate bond interest rates used to value pension liabilities, which saw discount rates increase 13 basis points to 4.12% from 3.99% over the same time period.

“Six months into 2018 and corporate pensions are well ahead of where they started at the beginning of the year,” Zorast Wadia, a principal and consulting actuary at Milliman, said in a release. “The rise in discount rates has helped these pensions stay on track, with June marking the highest rate since January 2016. This is despite investment performance falling short of expectations so far in 2018.”

The asset value of the 100 largest US corporate pension plans declined to $1.526 trillion at the end of June from $1.531 trillion at the end of May. During the same time, the projected benefit obligation decreased $28 billion during June. The projected benefit obligation is how much a company will need today to cover future pension liabilities.

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For the quarter ending June 30, the plans’ assets saw a net investment gain of 0.61%, which Milliman said was short of expectations. However, discount rates increased 21 basis points during the quarter, which resulted in a net funded status improvement of $40 billion. At the same time, the funded status deficit shrank to $118 billion. The funded ratio of the plans of the 100 largest US companies increased 2.2% from 90.6% at the end of the first quarter, which was mainly due to discount rate gains.

Milliman said that using an optimistic forecast of interest rates rising to 4.42% by the end of 2018, and 5.02% by the end of 2019, combined with annual asset gains of 10.8%, the funded ratio of the plans would increase to 100% by the end of 2018, and 116% by the end of 2019. However, under a pessimistic forecast that involves a 3.82% discount rate at the end of 2018, and 3.22% by the end of 2019 combined with annual returns of just 2.8%, the plans’ funded ratio would decline to 89% by the end of 2018, and 83% by the end of 2019.

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Home > News > Market Moves > Earnings Should Rise 19.5% in 2nd Quarter, Says Sam Stovall
Market Moves

Earnings Should Rise 19.5% in 2nd Quarter, Says Sam Stovall

CFRA’s strategist sees slight dip from January-March period, with energy the star.

By Larry Light

Second-quarter earnings aren’t expected to be as robust as last year’s or the 2018 first period’s. But they should be pretty decent, according to Sam Stovall, the CFRA chief investment strategist, and his team.

That means a 19.5% increase in earnings per share for the second quarter, Stovall wrote in a research report. For the quarter, earnings are projected to be positive for nine of the 11 S&P 500 sectors, with utilities and real estate dipping. In this year’s first quarter, the S&P 500 increase was 23.3%, partly powered by still-strong performance in Europe. But Europe since then has cooled down.

The big second-quarter winner is expected to be energy, once again, ahead a whopping 140.5%. Stovall forecasts that the sector should continue to prosper thanks to surging oil prices—per-barrel, West Texas Intermediate oil is now around $68, up 40% from 12 months before. Domestic refining operations benefit from the gap between WTI crude and more expensive Europe-based Brent fuel.

Financials will be the second-biggest gainer, he contended, up 22.5%. This is the fruit of rising net interest margins as short-term rates increase (those for deposits aren’t advancing so much).

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Information technology, long the king of the stock market, should be in third place, with a 21.5% boost, Stovall indicated, because the start of summer is usually a slow time for the industry. Aside from that seasonal factor, he warned, a stronger dollar may crimp international sales of US tech goods and services, as well as a mounting wall of tariffs that are rising worldwide in response to President Donald Trump’s trade barriers.

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