Promising Start to ’24 for DB Plans

The year began on a positive note for private-sector pension plans, according to recent analyses. 

Willis Towers Watson, Aon, Milliman, and October Three report that private-sector DB plans had a good month overall in January.

Willis Towers Watson’s Pension Index, which tracks the asset/liability performance of a hypothetical benchmark pension plan, improved by 1.2 percentage points in January from 107.6 % on New Year’s Day to 108.8% at month’s end. They attribute the improvement largely to rising  discount rates, as well as concurrent investment gains. 

Milliman, which looks at the 100 largest U.S. corporate pension plans, reports a 1 percentage point improvement in their funded ratio. That spells a $12 billion improvement in funded status and a $40 billion aggregate funding surplus.  

Aon, which tracks daily funded status for S&P 500 companies with pension plans, reports similar overall progress. Their January results show that the aggregate funded ratio for those plans grew by almost 1 percentage point from 100.9 % on New Years Day to 101.8% on Jan. 31. In dollars and cents, that translates to an aggregate improvement of $14 billion. 

And October Three, which tracks two hypothetical plans—one traditionally invested, and one conservatively invested—reports that both plans’ funded ratios improved in January, but by less than 1%. 

Investments

January brought mixed Investment returns, says Willis Towers Watson. They found that for the hypothetical plan they track:

• equities in the benchmark portfolio returned 0.8% in January; 
• the domestic large cap asset class saw gains;
• the small/mid-cap asset classes showed losses; 
• fixed income investments of the tracked benchmark portfolio lost 0.2%, with long Treasury bonds showing the worst losses; and 
• yields on long high-quality corporate bond indices increased by an average of 12 basis points. 

Aon reports that pension asset returns fell by 0.4% in January. 

Assets and Liabilities 

The improved funded status of $14 billion that Aon reports for the pension plans of the S&P 500 in January resulted from the decrease in liabilities exceeding the decrease in assets. While aggregate assets fell by $15 billion, aggregate liabilities dropped by almost twice as much, $29 billion. 

Milliman, similarly, reports that while assets showed losses in January, that was outstripped by decreases in liabilities. In like manner, October Three says that assets lost in January, but less than 1%, whereas the drop in liabilities was greater than that.