High investment returns supported pension funding in 2019. The December 2019 Milliman 100 Pension Funding Index Survey* reported that funded status improved over the fourth quarter to 89.0%, up from 85.4% at the end of the third quarter. Although the liability discount rate rose 11 basis points to 3.20% at the end of the year, pension assets appreciated 3.09% over the quarter, contributing to most of the gain.
The index began 2019 at 89.4%, when the liability discount rate was 4.19%. Although the discount rate declined almost a full percent in 2019, pension assets rose 15.66%, keeping the funded status approximately unchanged over the year.
Pension plan sponsors, like most analysts, are thinking the Fed will halt easing interest rates for the next year. If the discount rate holds at the current level of 3.20% and assets earn a projected 6.60% return (the median projected asset return based on the Survey*), the funded ratio could rise to 92.70% by the end of 2020.
*The Milliman Pension Funding Index is based on actual pension plan accounting information for the 100 largest defined benefit pension plans sponsored by U.S. public companies. The index is based on a ratio of the market value of assets compared to the projected benefit obligation (PBO), as a measure of the pension liabilities.