By Staff
After four consecutive months of improvement, the funded
ratio of corporate pension plans dropped from 106.0% to 104.8%, as of February
28, according to a new report by Milliman Inc, an actuarial and consulting firm.
The report, which analyzes the 100 largest corporate plans in
the U.S., found, overall, the funded status of plans listed in Milliman’s index
declined by $13 billion in February.
Indeed, it noted a decrease in the benchmark corporate bond interest
rates resulted in an increase in pension liabilities, with monthly discount
rates dropping from 5.60% to 5.36% for the month. While pension assets
increased by $18 billion as a result of January’s 1.90% investment return, the
gains weren’t enough to offset the liability increase in the plans included in the
study.
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“Gains in fixed income investments helped shore up the
Milliman 100 pension assets but were not strong enough to counter the sharp
discount rate decline,” said Zorast Wadia, a principal with Milliman, in a
press release. “With more Fed rate cuts possibly coming in 2025, plan sponsors
with prudent asset-liability matching strategies will be able to preserve their
funded status improvement seen over the past year.”
The report noted, under an optimistic forecast with rising interest
rates (reaching 5.86% by the end of 2025 and 6.46% by the end of 2026) and
asset gains (10.4% annual returns), the funded ratio would climb to 115% by the
end of 2025 and 129% by the end of 2026.
However, under a pessimistic forecast (4.86% discount rate
at the end of 2025 and 4.26% by the end of 2026 and 2.4% annual returns), the
funded ratio would decline to 97% by the end of 2025 and 88% by the end of
2026.
