Positive Signs for Pension Plans in August

There was good news for private-sector pension plans in August by a variety of measures, several reports indicate. 

Liabilities and Assets

Liabilities rose slightly in August, says Willis Towers Watson. But only very slightly—they report that the liability implicit in their pension index increased by a mere 0.1% in August. River and Mercantile, however, found that pension liabilities dropped in August by roughly 0.5%-0.7% for a typical pension plan. Milliman, also, reports in its Milliman 100 Pension Funding Index—which measures the health of the 100 largest corporate defined benefit plans—that liabilities among the  plans fell. It attributes those results to an increase in the benchmark corporate bond interest rates it uses to value those liabilities.

There also was some good news regarding assets. River and Mercantile says that U.S. fixed income investments remained stable, while the value of U.S. equities improved by 2%-3%. And Milliman also reports gains in the assets of the plans in its index, to the tune of 12.97%. It further says that there was an investment return of 0.90% in August, which raised the asset value in its fund index by $10 billion, to $1.844 trillion.

Discount Rates 

Willis Towers Watson attributed the very slight increase in liabilities that they found to discount rates. River and Mercantile, similarly, reports that in August they found that pension discount rates rose by 0.05%. However, they say that by their measure, the overall news for 2021 regarding pension discount rates is good—down by 0.50% since March and just 0.20% higher than they were on Jan. 1.  

Over the last 12 months (September 2020 – August 2021), the cumulative asset return for these pensions has been 12.97% and the Milliman 100 PFI funded status deficit has improved by $210 billion. Discount rates have shown a net increase over the last 12 months of 11 basis points. The funded ratio of the Milliman 100 companies has improved significantly over the past 12 months to 97.1% from 86.5% primarily due to investment gains.

Over the last 12 months (September 2020 – August 2021), the cumulative asset return for these pensions has been 12.97% and the Milliman 100 PFI funded status deficit has improved by $210 billion. 

The funded ratio of the Milliman 100 companies has improved significantly over the past 12 months to 97.1% from 86.5% primarily due to investment gains.

Funded Status

River and Mercantile said that overall funded status for a typical pension plan improved in August. Milliman, too, reported improvement. This stands in contrast to the contraction reported in July. 

Milliman reports that the funded status of the 100 largest corporate pension plans improved by $28 billion, and their deficit fell to $54 billion. The funded ratio as September began, says Milliman, stood at 97.1%, a 1.4 percentage point improvement in one month.

Further, says Milliman, the longer-term trend is positive: August’s improvement in funded status was a reversal of the declines that took place in June and July, and August was the fifth consecutive month in which it found an improvement in investment returns. 

Not only that, Milliman reports, in the 12-month period Sept. 1, 2020 to Aug. 31, 2021:

• the cumulative asset return improved 12.97%;
• the funded status deficit in the plans it measures in its index improved by $210 billion; and 
• the funded ratio of the plans in its index jumped by 10.6 percentage points.