By: Russ Kamp, CEO, Ryan ALM, Inc.
Milliman once again released its monthly Milliman 100 Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate DB pension plans. October marked the seventh straight month that the PFI funded ratio improved, increasing from 106.5% on September 30, to 107.1% as of October 31. Once again it was asset gains that drove this result. Those gains were marginally offset by a 3-basis-point dip in the discount rate, which slipped to 5.33% by the end of October. For the month, the market value of plan assets rose to $1.328 trillion, while the projected benefit obligations rose to $1.240 trillion.
Zorast Wadia, author or the report and my lunch date this past Wednesday, stated “Continued robust investment gains in October pushed corporate pension funded ratios further into surplus territory and up to levels not seen since March 2002, during the dot-com crisis,”. He continued, “however, we’ve seen recent evidence of declining discount rates, and if this continues through the end of 2025, funded ratios may lose ground without prudent asset-liability matching.”
That last statement by Zorast was the main focus of our lunch conversation. We are both thrilled to see the improved funding for private DB pension plans but remain concerned that those plans that haven’t yet de-risked are potentially playing with fire. Furthermore, securing the promised benefits through a cash flow matching strategy, which I believe is the primary objective in management a DB pension plan, gives these private pension plans great flexibility and helps in attracting and retaining talented employees. Yields remain attractive and the potential cost reduction to secure future benefits is still robust.
Ryan ALM Blog 
Thanks for sending this along.
It’s astounding to me that with legitimate funding ratios at nearly 107% we don’t see more plans derisking more, or transferring these liabilities to an insurance company (perhaps borrowing a bit to hit the 110% hurdle) or at least taking a rather gutless middle-of-the-road approach and cash match even a portion of these liabilities.
Hello Loudly – Thanks for your comment. I believe that using cash flow matching to secure the promises provides these companies with the flexibility to maintain the plan and engage in surplus management. Have a great weekend. Russ
Let me emphasize that I see traditional LDI as a woefully inferior solution to cash flow matching, which is not only a superior immunization approach, but which actually funds the liability payments – something that LDI solutions fail to do. And there is never a better time than now to do.
Here, here! Stay well!