Milliman Analysis: Corporate Pensions Experience Back-to-Back Monthly Gains with $7B Improvement in October

Staff Report

Thursday, November 9th, 2017

Milliman, Inc., a premier global consulting and actuarial firm, released the results of its latest Pension Funding Index, which analyzes the 100 largest U.S. corporate pension plans. In October, these pensions' funded status experienced a $7 billion uptick, increasing for the second month in a row and bringing the total funded status gain to $32 billion since August 31. October's improvement was the result of robust 1.19% investment returns, which saw the Milliman PFI plans' funded ratio climb to 84.7% for the month. Cumulative investment gains in 2017 are 9.57% year-to-date; by comparison, the 2017 Milliman Pension Funding Study reported that the monthly median expected investment return during 2016 was 0.57% (7.0% annualized).

"While October's investment returns are well above expectations, funded status gains were partially offset by the continued low discount rate environment," said Zorast Wadia, co-author of the Milliman 100 PFI. "It will be interesting to see what, if any, changes are in store to interest rate strategy with the nomination of a new Fed chair."

Looking forward, under an optimistic forecast with rising interest rates (reaching 3.76% by the end of 2017 and 4.36% by the end of 2018) and asset gains (11.0% annual returns), the funded ratio would climb to 87% by the end of 2017 and 100% by the end of 2018.  Under a pessimistic forecast (3.56% discount rate at the end of 2017 and 2.96% by the end of 2018 and 3.0% annual returns), the funded ratio would decline to 84% by the end of 2017 and 77% by the end of 2018.