The funded status of the 100 largest U.S. corporate defined benefit pension plans rose by $5 billion during March, as measured by the Milliman 100 Pension Funding Index (PFI). The funded status surplus improved to $73 billion from $68 billion at the end of February 2024, due to strong investment returns that offset rises in plan liabilities incurred during March. Plan liabilities increased due to a decline in the benchmark corporate bond interest rates used to value pension liabilities. As of March 31, the funded ratio rose to 105.6%, from 105.3% at the end of February. March’s increase caps an impressive first quarter of 2024 that saw a $44 billion improvement in funded status and the funded ratio reaching its highest point since October 2022.
The Milliman 100 PFI asset value rose by $19 billion in March, to $1.373 trillion, driven by investment returns of 1.83%. By comparison, the 2023 Milliman Pension Funding Study reported that the monthly expected investment return during 2022 was 0.47% (5.8% annualized). The full results of the annual 2023 study can be found at www.milliman.com/pfs. Later in April, Milliman will publish its 2024 Pension Funding Study capturing plan information for fiscal years ending in 2023.
The PFI projected benefit obligation, or pension liabilities, increased by $14 billion during March to $1.299 trillion as of March 31. The change resulted from a decrease of 11 basis points in the monthly discount rate to 5.24% for March from 5.35% for February. Discount rates rose during the first two months of 2024.
Highlights
| $ BILLION | FUNDED PERCENTAGE | |||
|---|---|---|---|---|
| MV | PBO | FUNDED STATUS | ||
| February | 1,353 | 1,286 | 68 | 105.3% |
| March | 1,373 | 1,299 | 73 | 105.6% |
| Monthly change | +19 | +14 | +5 | 0.3% |
| YTD Change | +6 | (38) | +44 | 3.4% |
Note: Numbers may not add up precisely due to rounding
First quarter 2024 summary
For the quarter ending March 31, 2024, PFI plan assets grew by $6 billion while liabilities decreased by $38 billion. While investments posted returns of 1.69% during the period, discount rates rose 24 basis points and helped to propel the $44 billion funded status improvement seen during the first quarter. The funded ratio of the Milliman 100 companies improved to 105.6% at the end of March from 102.2% at the beginning of 2024.
Over the last 12 months (April 2023 to March 2024), the cumulative asset return for these pensions has been 7.20%, and the Milliman 100 PFI funded status surplus grew by $72 billion. Strong investment returns and increasing discount rates drove this result. The funded ratio of the Milliman 100 plans has increased to 105.6% from 100.1% over the past 12 months.
The projected asset and liability figures presented in this analysis will be adjusted as part of Milliman’s 2024 PFS, which will summarize and report on the most recent plan sponsor financials filed with the U.S. Securities and Exchange Commission. The 2024 PFS will also reflect reported pension settlement and annuity purchase activities that occurred during 2023. De-risking transactions generally result in reductions in pension funded status since the assets paid to the participants or assumed by the insurance companies as part of the risk transfer are larger than the corresponding liabilities that are extinguished from the balance sheets. To offset this decrease, many companies engaging in de-risking transactions make additional cash contributions to their pension plans to improve the plan’s funded status.
Figure 1: Milliman 100 Pension Funding Index — Pension surplus/deficit
Figure 2: Milliman 100 Pension Funding Index — Pension funded ratio
2024-2025 projections
If the Milliman 100 PFI plans were to achieve the expected 5.8% median asset return (as per the 2023 PFS), and if the current discount rate of 5.24% remains unchanged throughout 2024 and 2025, we forecast that the funded status of the surveyed plans would increase. The pension surplus is projected to be $88 billion (funded ratio of 106.8%) by the end of 2024 and $108 billion (funded ratio of 108.5%) by the end of 2025. For purposes of this forecast, we have assumed 2024 and 2025 aggregate annual contributions of $25 billion.
Under an optimistic forecast with rising interest rates (reaching 5.69% by the end of 2024 and 6.29% by the end of 2025) and annual asset returns of 9.8%, the funded ratio is projected to climb to 115% by the end of 2024 and 130% by the end of 2025. Under a pessimistic forecast with similar interest rate and asset movements (4.79% discount rate at the end of 2024 and 4.19% by the end of 2025 and 1.8% annual asset returns), the funded ratio is projected to decline to 99% by the end of 2024 and 90% by the end of 2025.
Milliman 100 Pension Funding Index - April 2024 (all dollar amounts in millions)
Pension asset and liability returns
About the Milliman 100 monthly Pension Funding Index
For the past 23 years, Milliman has conducted an annual study of the 100 largest defined benefit pension plans sponsored by U.S. public companies. The Milliman 100 Pension Funding Index projects the funded status for pension plans included in our study, reflecting the impact of market returns and interest rate changes on pension funded status, utilizing the actual reported asset values, liabilities, and asset allocations of the companies’ pension plans.
The results of the Milliman 100 Pension Funding Index were based on the actual pension plan accounting information disclosed in the footnotes to the companies’ annual reports for the 2022 fiscal year and for previous fiscal years. This pension plan accounting disclosure information was summarized as part of the Milliman 2023 Pension Funding Study, which was published on April 20, 2023. In addition to providing the financial information on the funded status of U.S. qualified pension plans, the footnotes may also include figures for the companies’ nonqualified and foreign plans, both of which are often unfunded or subject to different funding standards than those for U.S. qualified pension plans. They do not represent the funded status of the companies’ U.S. qualified pension plans under ERISA.