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Fourth Quarter Corporate Pension Funding Improves

The Milliman 100 Pension Funding Index Survey* found that pension funding for the 100 largest corporate defined benefit plans increased during the fourth quarter. The Index was 88.2% in December, compared to a revised 84.4% at the end of September 2020.

Typical plan assets rose about 5.9% over the quarter, as financial markets reacted positively to news about vaccine development and a global economy that continued to recover from the devastating impact of Covid‐19. Projected benefit obligations (PBO) increased only 1.3% during the same time period due to the decrease in the liability discount rate from 2.57% to 2.46%.

For the year, pension funding status was lower than at the end of 2019, when the Index was 89.8%. On a net basis, the 74 basis‐point decline in the liability discount rate had a greater impact on funded status compared to asset gains of 11.72% in 2020.

Looking forward, Milliman projects funding status could improve to 92.2% by the end of 2021, given interest rates could remain stable based on favorable Federal Reserve policies, and projected asset returns meeting an expected return of 6.5%.

*Source: Milliman Pension Funding Index Survey, January 8, 2021, and Society of Actuaries.