By: Russ Kamp, Managing Director, Ryan ALM, Inc.

Milliman has once again released the results of its latest Milliman 100 Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. Funding improved from December’s 102.1 to 103.1 by the end of January. The key to the improved funding was the rise in the discount rate as US rates rose after a significant decline to end 2023.

According to Zorast Wadia, the producer of the Milliman report, the discount rate improved by 14 bps to 5.14%, which drove total pension liabilities down to $1.316 trillion. The improvement in the discount rate (higher rates mean lower PV of liabilities) was more than enough to overcome a minor -0.3% loss on the asset side of the equation. Assets for the members of this index now total $1.356, as of the end of January 2024, which is down $10 billion from December 31st.

With the improved funding, plan sponsors should further de-risk the asset allocation. Again, this doesn’t mean closing and terminating the plan. It does mean that those who haven’t taken substantial risk out of their plan’s asset allocation subject those assets to unnecessary risk. As we’ve preached, use your fixed income allocation to match and defease pension liabilities through the bond cash flows of principal and interest. Cash flow matching not only provides the sponsor with the liquidity to meet ongoing benefit payments, but it also provides the most efficient duration match, as each month of the assignment is duration matched. Check out the research on this subject and other LDI subjects at ryanalm.com.