Milliman 100 Pension Funding Index
Milliman analysis: Funded status improves
by $40 billion in April
The Milliman 100 PFI funded status deficit decreases to $311 billion
John Ehrhardt, FSA, MAAA, EA
Zorast Wadia,
FSA, MAAA, EA
2000
1800
The funded status of the 100 largest corporate defined benefit
pension 1600
plans increased by $40 billion during April as measured by
the Milliman
100 Pension Funding Index (PFI). The funded status
1400
deficit fell to $311 billion at the end of April primarily due to an
increase1200
in the benchmark corporate bond interest rates used to
value pension
1000 liabilities. Weak asset returns partially offset the full
extent of the liability decreases in April. As of April 30, the funded
ratio rose800
to 82.6%, up from 80.9% at the end of March.
HIGHLIGHTS
$ BILLION
MV PBO
600
FUNDED FUNDED
STATUSPERCENTAGE
MAR 2015
1,482
1,832
(350)
APR 2015
1,480
1,791
(311)
80.9%
82.6%
MONTHLY CHANGE
(2)
(42)
+40
+1.7%
YTD CHANGE
+25
+6
+19
+1.1%
Dec-10
Jun-10
Sep-10
Mar-10
Dec-09
Jun-09
Sep-09
Mar-09
Dec-08
Jun-08
Sep-08
Mar-08
Dec-07
Jun-07
Sep-07
Mar-07
Dec-06
Jun-06
Sep-06
Mar-06
Dec-05
Jun-05
By comparison, the 2015 Milliman Pension Funding Study reported
that the monthly median expected investment return during 2014
was 0.59% (7.3% annualized).
Sep-05
April’s sub-par investment activity led to a decrease in Milliman 100 PFI
asset value to $1.480 trillion from $1.482 trillion at the end of
March based on a meager investment gain of 0.22% for the month.
Mar-05
Note: Numbers may not add up precisely due to rounding
Dec-04
Jun-04
Sep-04
Mar-04
Dec-03
Jun-03
Sep-03
Mar-03
Dec-02
Jun-02
Sep-02
Mar-02
Dec-01
Jun-01
Sep-01
Mar-01
Dec-00
Jun-00
Sep-00
Mar-00
Dec-99
The projected benefit obligation (PBO), or pension liabilities,
400
decreased
by $42 billion during April, lowering the Milliman 100 PFI
value to $1.791 trillion. The change resulted from an increase of
200
17 basis points in the monthly discount rate to 3.82% for April
from 3.65%0for March. That makes it six consecutive months with
historically low sub-4.00% discount rates.
MV Assets
PBO
Over the last 12 months (May 2014 to April 2015), the cumulative
asset return for these pensions has been 9.64% and the Milliman
100 PFI funded status deficit has worsened by $41 billion.
FIGURE 1: MILLIMAN 100 PENSION FUNDING INDEX PENSION SURPLUS/DEFICIT
400
300
200
100
0
-100
-200
-300
-400
-500
Dec-99
Mar-00
Jun-00
Sep-00
Dec-00
Mar-01
Jun-01
Sep-01
Dec-01
Mar-02
Jun-02
Sep-02
Dec-02
Mar-03
Jun-03
Sep-03
Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
-600
120
May 2015
110
Optimistic Forecast (Asset & Liability Gains)
Discount Rate
4/30/2015
Discount Rate
12/31/2015
Discount Rate
12/31/2016
Expected Rate
of Return
3.82%
4.22%
4.82%
11.30%
-400
-500
Dec-99
Mar-00
Jun-00
Sep-00
Dec-00
Mar-01
Jun-01
Sep-01
Dec-01
Mar-02
Jun-02
Sep-02
Dec-02
Mar-03
Jun-03
Sep-03
Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
-600Pension Funding Index
Milliman 100
FIGURE 2: MILLIMAN 100 PENSION FUNDING INDEX — PENSION FUNDED RATIO
120
110
Discount Rate
4/30/2015
Discount Rate
12/31/2015
Discount Rate
12/31/2016
Expected Rate
of Return
3.82%
3.82%
3.82%
4.22%
3.82%
3.42%
4.82%
3.82%
2.82%
11.30%
7.30%
3.30%
Optimistic Forecast (Asset & Liability Gains)
Baseline Forecast (No Gains or Losses)
Pessimistic Forecast (Asset & Liability Losses)
100
90
80
70
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
The primary
150reason for the decrease in the funded status deficit has
been the drop in discount rates experienced over the last 12 months.
140
The discount
rate as of a year ago (on April 30, 2014) was 4.20%,
38 basis points
higher than where it stands as of April 30, 2015.
130
The funded ratio of the Milliman 100 companies has decreased
120 12 months to 82.6% from 84.0%.
over the past
2015-2016
PROJECTIONS
110
If the Milliman 100 PFI companies were to achieve the expected
100 the 2015 pension funding study) median asset return
7.3% (as per
for their pension plan portfolios and the current discount rate of
90
3.82% were maintained in 2015 and 2016, we forecast that the
funded status
80 of the surveyed plans would increase. This would
result in a projected pension deficit of $286 billion (funded ratio
of 84.1%) 70
by the end of 2015 and a projected pension deficit of
$244 billion (funded ratio of 86.4%) by the end of 2016. For
60
purposes of this forecast, we have assumed 2015 aggregate
contributions
50 of $32 billion and 2016 aggregate contributions
of $36 billion. Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Dec-16
Mar-12
Oct-16
Feb-12
Jul-16
Jan-12
Apr-16
Dec-11
Jan-16
Nov-11
Oct-15
Oct-11
Jul-15
Sep-11
Apr-15
Aug-11
Jan-15
Jul-11
Oct-14
Jun-11
Jul-14
May-11
Apr-14
Apr-11
Jan-14
Mar-11
Jul-13
Feb-11
Oct-13
Jan-11
Apr-13
Dec-10
Jan-13
Nov-10
Oct-12
Oct-10
Jul-12
Sep-10
Apr-12
Aug-10
Jan-12
Jul-10
Oct-11
Jun-10
Jul-11
May-10
Apr-11
Apr-10
Jan-11
Mar-10
Oct-10
Feb-10
Jul-10
Jan-10
Apr-10
Jan-10
60
ABOUT THE MILLIMAN 100 MONTHLY PENSION FUNDING INDEX
For the past 15 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
Funded Ratio
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 2014 fiscal year and for previous fiscal years. This pension
plan accounting disclosure information was summarized as part
of the Milliman 2015 Pension Funding Study, which was
published on April 2, 2015. 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
both ofDec-08
which areDec-09
often unfunded
Dec-04
Dec-05and foreign
Dec-06 plans,
Dec-07
or subject to different funding standards than those for U.S.
Under an optimistic forecast with rising interest rates (reaching 4.22%
qualified pension plans. They do not represent the funded status
by the end of 2015 and 4.82% by the end of 2016) and asset gains
of the companies’ U.S. qualified pension plans under ERISA.
(11.3% annual returns), the funded ratio would climb to 91% by the
end of 2015 and 105% by the end of 2016. Under a pessimistic
forecast with similar interest rate and asset movements (3.42%
discount rate at the end of 2015 and 2.82% by the end of 2016 and
3.3% annual returns), the funded ratio would decline to 78% by the
end of 2015 and 70% by the end of 2016.
John Ehrhardt is a principal and consulting actuary with the New
York office of Milliman. Zorast Wadia is a principal and consulting
actuary with the New York office of Milliman. Contact them at
[email protected] or at 646.473.3000.
2
May 2015
Milliman 100 Pension Funding Index
MILLIMAN 100 PENSION FUNDING INDEX — APRIL 2015 (ALL DOLLAR AMOUNTS IN MILLIONS)
END OF MONTH
YEAR
MARKET VALUE
OF ASSETS
PROJECTED BENEFIT
OBLIGATION (PBO)
FUNDED STATUS
CHANGE IN
FUNDED STATUS
FUNDED RATIO
APRIL
2014 1,418,4811,688,526 (270,045)
MAY
2014 1,436,8121,718,360 (281,548) (11,503)
N/A
84.0%
83.6%
JUNE
2014 1,445,2901,715,825 (270,535) 11,013
84.2%
JULY
2014 1,433,8891,713,759 (279,870) (9,335)
83.7%
AUGUST
2014 1,456,4751,760,527 (304,052) (24,182)
82.7%
SEPTEMBER 2014 1,433,6501,715,644 (281,994) 22,058
83.6%
OCTOBER
2014 1,444,6511,738,390 (293,739) (11,745)
83.1%
NOVEMBER 2014 1,461,6071,764,912 (303,305) (9,566)
82.8%
DECEMBER 2014 1,455,1591,784,747 (329,588) (26,283)
81.5%
JANUARY
2015 1,466,8711,892,551 (425,680) (96,092)
77.5%
FEBRUARY
2015
81.2%
MARCH
2015 1,481,7881,832,227 (350,439) (7,407)
80.9%
APRIL
2015
82.6%
1,484,710
1,479,846
1,827,742
(343,032)
1,790,601
(310,755)
82,648 39,684 PENSION ASSET AND LIABILTY RETURNS
END OF MONTH
YEAR
ASSET RETURNS
MONTHLY
YEAR-TO-DATE DISCOUNT RATE
LIABILITY RETURNS
MONTHLY
YEAR-TO-DATE
APRIL
2014 0.76%2.96% 4.20% 1.58%7.46%
MAY
2014 1.75% 4.77% 4.06%
JUNE
2014 1.04% 5.86% 4.08% 0.12%9.77%
JULY
2014 -0.34% 5.49% 4.10% 0.15%9.93%
AUGUST
2014
SEPTEMBER2014
OCTOBER
2.03% 7.63%
-1.13%
6.42%
2.04%9.64%
3.89%
2.99%13.22%
4.10%
-2.29% 10.63%
2014
1.22% 7.72%
4.00%
1.59%12.38%
NOVEMBER2014
1.62% 9.46%
3.89%
1.78%14.38%
DECEMBER 2014
0.00% 9.46%
3.84%
1.37%15.95%
JANUARY 2015 1.16% 1.16% 3.41% 6.32%6.32%
FEBRUARY2015
1.57% 2.75% 3.67% -3.15%2.97%
MARCH
2015 0.15% 2.90% 3.65% 0.52%3.51%
APRIL
2015 0.22% 3.13% 3.82% -1.99%1.45%
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May 2015