Milliman - Corporate Pension Funded Ratios Up Again
By: Russ Kamp, CEO, Ryan ALM, Inc.
Milliman once again released its monthly Milliman 100 Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate DB pension plans. October marked the seventh straight month that the PFI funded ratio improved, increasing from 106.5% on September 30, to 107.1% as of October 31. Once again it was asset gains that drove this result. Those gains were marginally offset by a 3-basis-point dip in the discount rate, which slipped to 5.33% by the end of October. For the month, the market value of plan assets rose to $1.328 trillion, while the projected benefit obligations rose to $1.240 trillion.
Zorast Wadia, author or the report and my lunch date this past Wednesday, stated “Continued robust investment gains in October pushed corporate pension funded ratios further into surplus territory and up to levels not seen since March 2002, during the dot-com crisis,”. He continued, “however, we’ve seen recent evidence of declining discount rates, and if this continues through the end of 2025, funded ratios may lose ground without prudent asset-liability matching.”
That last statement by Zorast was the main focus of our lunch conversation. We are both thrilled to see the improved funding for private DB pension plans but remain concerned that those plans that haven't yet de-risked are potentially playing with fire. Furthermore, securing the promised benefits through a cash flow matching strategy, which I believe is the primary objective in management a DB pension plan, gives these private pension plans great flexibility and helps in attracting and retaining talented employees. Yields remain attractive and the potential cost reduction to secure future benefits is still robust.