By: Russ Kamp, CEO, Ryan ALM, Inc.
Milliman released its monthly Milliman 100 Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. Again, the news was positive.
For August, strong investment performance overcame a decline in discount rates to power the PFI funded ratio from 105.5% at the end of July to 106.2%, as of August 31. As previously mentioned, discount rates slipped during the period from 5.55% to 5.53%, as U.S. interest rates ticked lower, while the index participants enjoyed gains of 1.25%. The collective market value of plan assets rose by $10 billion during August, to $1.290 trillion. Importantly, the index participants experienced a funded status improvement of $8 billion, marking the fifth consecutive monthly rise in funding levels.
““After strong investment performance, corporate pension plans moved further into surplus territory during August,” said Zorast Wadia, author of the PFI. “However, with the expectation of rate cuts on the horizon, plan sponsors should take steps now to preserve funded status gains and institute prudent asset-liability management strategies.”” (bolding is my addition to the text)
We, Ryan ALM, couldn’t agree more with Zorast’s recommendation. Managing a DB pension plan’s primary objective is to SECURE the promised benefits at a reasonable cost and with prudent risk. It is NOT a performance game. With the great uncertainty surrounding the current economic environment with cross-currents such as job losses and inflation, why wait to remove risk from the plan’s current asset allocation. By doing so, you are minimizing the chance of a significant market decline impacting the pension plan’s funded status/ratio and contributions both taking a hit.
You can read the complete Milliman report in the link below. It’s a good read!
Ryan ALM Blog 