US Corporate Pension Funded Ratio Climbs to 89.8% in January

An increase in discount rates boosted the funded levels of the 100 largest corporate pension plans by $39 billion.


The funded ratio of the 100 largest corporate defined benefit (DB) pension plans improved to 89.8% at the end of January from 88.1% at the end of December as their aggregate deficit fell below $200 billion for the first time in more than a year, according to consulting firm Milliman.

With the help of a 16 basis point (bp) increase in the monthly discount rate to 2.62% from 2.46%, the plans’ funding improved by $39 billion in January as their aggregate deficit declined to $196 billion from $235 billion due to liability gains incurred during the month.

“Over the past four months, we’ve seen the funded ratio for these plans climb steadily upward,” Zorast Wadia, author of the Milliman 100 PFI, said in a statement. “January’s discount rate bump was good news for corporate pensions, especially coming on the heels of last quarter’s $70 billion funded status improvement.”

However, a 0.21% investment loss during the month caused the aggregate market value of the plans’ assets to decline by $7 billion to $1.738 trillion as of the end of January. Otherwise, investment returns for the plans have been robust over the previous 12 months to January, returning 10.26% to help improve their funded status by $61 billion.

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However, the strong returns were in a large part offset by the general downward trend in discount rates last year. If not for the falling rates, the funded ratio would have increased significantly more than the 3.4 percentage point bump during the previous 12 months from 86.4% at the end of February 2020.

The pension liabilities, or projected benefit obligation (PBO), fell to $1.935 trillion during the month, which was also attributed to the 16 bp increase in the monthly discount for January.

Milliman said that if the companies in its index were to earn a 6.5% median asset return, and if the current discount rate of 2.62% held steady through this year and next, the funded ratio of the plans would increase to 93.6% by the end of 2021 and 97.9% by the end of 2022. The forecast includes aggregate annual contributions of $50 billion in 2021 and 2022.

Under an optimistic forecast with interest rates rising to 3.17% by the end of 2021 and 3.77% by the end of 2022, with 10.5% annual asset gains, the forecasted funded ratio would surge to 104% by the end of 2021 and 123% by the end of 2022. However, under a pessimistic forecast with interest rates falling to 2.07% by the end of 2021 and 1.47% by the end of 2022, coupled with annual asset gains of only 2.5%, the expected funded ratio would fall to 84% by the end of 2021 and 77% by the end of 2022.

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Wisconsin Investment Board Executive Director, CIO David Villa Dies at 66

Villa had been executive director since 2018 and CIO since 2006.

David Villa

David Villa, executive director and CIO of the $120 billion Wisconsin Retirement System, has died at the age of 66, the State of Wisconsin Investment Board (SWIB) announced Monday. SWIB did not announce the cause of death.

“SWIB and the state of Wisconsin have lost a visionary leader and a devoted public servant,” David Stein, chairman of SWIB’s board of trustees, said in a statement. “For 15 years, David worked tirelessly to build an organization committed to helping Wisconsin’s public sector employees to retire in dignity.”

Villa joined SWIB in 2006 as CIO, and was named executive director in 2018, when he was also named to CIO Magazine’s Power 100. Under Villa’s stewardship, SWIB said its internal management grew from 21% of assets to more than 50% of assets. It also said Villa generated strong returns for the retirement system at a lower cost than its peers and added $1.9 billion to the state’s retirement system above its performance benchmarks over the past five years. He also helped grow the fund’s hedge fund portfolio 12-fold to approximately $6 billion at the end of September 2018 from $500 million at the end of 2011.

Last month, the Wisconsin Retirement System reported preliminary 2020 net returns of 15.21%, with five- and 10-year annualized returns of 10.74% and 8.51%, respectively. It outperformed its benchmarks for all periods.

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“During his 15-year career at SWIB, the last three in the combined roles of chief investment officer and executive director, David provided visionary leadership,” Wisconsin Gov. Tony Evers said in a statement.

Prior to joining SWIB, Villa was CIO of the Florida State Board of Administration (SBA), and before that was with UBS Global Asset Management for 12 years. He started his career with First Chicago and Arthur Andersen. Up until his death, Villa served as a trustee of the Financial Accounting Foundation, the parent organization of the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB).

He graduated with a bachelor’s in economics from Princeton University, a master’s in Latin American studies from Stanford University, and an MBA in finance and accounting from Northwestern University.

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