Tag Archives: Funded Ratios

10.21.25
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Milliman: Another good month for pension funding

By: Russ Kamp, CEO, Ryan ALM, Inc.

Whether one is referring to public pensions or private DB plans, September was a continuation of the positive momentum experienced for most of 2025. Milliman has reported on both the Milliman 100 Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans and its Public Pension Funding Index (PPFI), which analyzes data from the nation’s 100 largest public defined benefit plans.

Milliman estimates that public pension funds saw aggregate returns of 1.7%, while corporate plans produced an average return for the month of 2.5%. As a result of these gains (sixth consecutive gain), public pension funded ratios stand at 85.4% up from 84.2% at the end of August. Corporate plans are now showing an aggregate funded ratio of 106.5%, marking the highest level since just before the Great Financial Crisis (GFC).

Public pension fund assets are now $5.66 trillion versus liabilities of $6.63 trillion, while corporate plans added $26 billion to their collective net assets increasing the funded status surplus to $80 billion. For corporate plans, the strong 2.5% estimated return was more than enough to overcome the decline in the discount rate to 5.36%, a pattern that has persisted for much of 2025.

“Robust returns helped corporate pension funding levels improve for the sixth straight month in September,” said Zorast Wadia, author of the Milliman PFI. “With more declines in discount rates likely ahead, funded ratios may lose ground unless plan assets move in lockstep with liabilities.”

“Thanks to continued strong investment performance, public pension funding levels continued to improve in September, and unfunded liabilities are now below the critical $1 trillion threshold for the first time since 2021,” said Becky Sielman, co-author of the Milliman PPFI. “Now, 45 of the 100 PPFI plans are more than 90% funded while only 11 are less than 60% funded, underscoring the continued health of public pensions.”

Discount rates have so far fallen in October. It will be interesting to see if returns can once again prop up funded status for corporate America. It will also be interesting to see how the different accounting standards (GASB vs. FASB) impact October’s results. A small gain for corporate plans may not be enough to overcome the potential growth in liabilities, as interest rates decline, but that small return may look just fine for public pension plans, that don’t mark liabilities to market only assets.

View this Month’s complete Pension Funding Index.

View the Milliman 100 Public Pension Funding Index.

07.08.25
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Milliman: Corporate Pension Funding Up

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, and they are reporting that the collective funded ratio has risen to 105.1% as of June 30th from 104.9% at the end of May. The driving force behind the improved funding was the powerful 2.6% asset return for the index’s members, which more than offset the growth in pension liabilities as the discount rate fell by 19 bps.

As a result of the significant appreciation during the month, the Milliman PFI plan assets rose by $27 billion to $1.281 trillion during the month from $1.254 trillion at the end of May. The discount rate fell to 5.52% in June, from 5.71% in May and it is now down slights from 5.59% at the beginning of the year. 

“The second quarter of 2025 was a win-win for pensions from both sides of the balance sheet, as market gains of 3.42% drove up plan assets while modest discount rate increases of 2 basis points reduced plan liabilities and resulted in the highest funded ratio since October 2022,” said Zorast Wadia, author of the PFI.

Zorast further stated that “if discount rates decline in the second half of the year, plan sponsors will need to be ever more focused on preserving funded status gains and employing prudent asset-liability management.” We couldn’t agree more. We, at Ryan ALM, believe that the primary goal in managing a DB pension plan is to secure the promised benefits at a reasonable cost and with prudent risk. It is NOT a return objective. Having achieved this level of funding allows plan sponsors and their advisors to significantly de-risk their plans through Cash Flow Matching (CFM), which is a superior duration strategy, as each month of the assignment is duration matched.

05.08.25
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Improved Corporate Pension Funding – Milliman

By: Russ Kamp, CEO, Ryan ALM, Inc.

Milliman released the results of its 2025 Corporate Pension Funding Study(PFS). The study analyzes pension data for the 100 U.S. public companies with the largest defined benefit (DB) pension plans. Unlike the monthly updates provided by Milliman, this study covers the 2024 fiscal years (FY) for each plan. Milliman has now produced this review for 25 consecutive years.

Here are Milliman’s Key findings from the 2025 annual study, including:

  • The PFS funded percentage increased from 98.5% at the end of FY2023 to 101.1% in FY2024, with the funded status climbing from a $19.9 billion deficit to a $13.8 billion surplus.
  • This is the first surplus for the Milliman 100 companies since 2007.
  • As of FY2024, over half (53) of the plans in the study were funded at 100% or greater; only one plan in the study is funded below 80%. RDK note: This is a significant difference from what we witness in public pension funding studies.
  • Rising U.S. interest rates aren’t all bad, as the funding improvement was driven largely by the 42-basis point increase in the PFS discount rate (from 5.01% to 5.43%)
  • Higher discount rates lowered the projected benefit obligations (PBO) of these plans from $1.34 trillion to $1.24 trillion.
  • While the average return on investments was 3.6% – lower than these plans’ average long-term assumption of 6.5% – the underperformance of assets did not outstrip the PBO improvement. Only 19 of the Milliman 100 companies exceeded their expected returns. 
  • According to Milliman, equities outperformed fixed-income investments for the sixth year in a row. Over the last five years, plans with consistently high allocations to fixed income have underperformed other plans but experienced lower funded ratio volatility. Since 2005, pension plan asset allocations have swung more heavily toward fixed income, away from equity allocations.

“Looking ahead, the economic volatility we’ve seen in 2025 plus the potential for declining interest rates likely means corporate plan sponsors will continue with de-risking strategies – whether that’s through an investment glide-path strategy, lump-sum window, or pension risk transfer,” said Zorast Wadia, co-author of the PFS. “But with about $45 billion of surplus in frozen Milliman 100 plans, there’s also the potential for balance sheet and cash savings by incorporating new defined benefit plan designs.” One can only hope, Zorast.

Final thought: Given the unique shape of today’s Treasury yield curve, duration strategies may be challenged to reduce interest rate risk through an average duration or a few key rates. As a reminder, Cash Flow Matching (CFM) duration matches every month of the assignment. Use CFM for the next 10-years, you have 120 bespoke duration matches.

04.03.25
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An Ugly Day For Pension America

By: Russ Kamp, CEO, Ryan ALM, Inc.

Yes, today’s ugliness in the markets is only one day and how many times have we heard or read that you can’t market time or if you miss just the best performing 25-, 50-, or 100-days in the stock market, your return will resemble that of cash or bonds? Those facts are mostly correct. We may not be able to market time, but we can certainly put in place an asset allocation framework that gets DB pension plans off the rollercoaster of performance. We can construct an asset allocation that provides the necessary liquidity when markets may not be able to naturally. An asset allocation that buys time for the growth asset to wade through troubled markets. A framework that secures the promised benefits and stabilizes both funded ratios and contribution expenses for that portion of the fund that has adopted a new strategy.

Yes, today is only one day, but the impact can be significantly negative. See, it isn’t just the loss that has to be made up, as pension plans are counting on a roughly 7% return (ROA) for the year. Every negative event pushes that target further away. Equity values are getting whacked and today’s market activity is just exacerbating the already weak start to the year. While equity markets are falling, U.S. interest rates are down precipitously. The U.S. 10-year Treasury note’s yield is down just about 0.8% since early in January. As a reminder, the average duration of a DB pension is about 12 years or twice the duration of the Bloomberg Barclays Aggregate Index, which is the benchmark for most core fixed income mandates. So, your bond portfolios may be seeing some appreciation today and since the start of 2025, but those portfolios are not growing nearly as fast as your plan’s liabilities, which have grown by about 10.6% (12 year duration x 0.8% + income of 1.0% = 10.6%). As a result, funded ratios are taking a hit.

I wrote this piece back on March 4th reminding everyone that the uncertainty around tariffs and other factors should inspire a course change, an asset allocation rethink. I suspect that it didn’t. So, one can just assume that markets will come back and the underperformance will not have impacted the pension plan, but that just isn’t true. In many cases, equity market corrections take years to recover from and in the process contribution expenses rise, and in some cases dramatically so.

Adopting a new asset allocation framework doesn’t mean changing the entire portfolio. A restructuring can be as simple as converting your highly interest rate sensitive core bond portfolio into a cash flow matching (CFM) portfolio that secures the promised benefits from next month out as far as the allocation can go. In the process you will have improved the plan’s liquidity, extended the investing horizon for the alpha assets, stabilized the funded status for that segment of your plan, and mitigated interest rate risk, as those benefit payments are future values which aren’t interest rate sensitive. You’ll sleep very well once adopted.

03.20.25
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FOMC and Powell Deliver Worrying Message

By: Russ Kamp, CEO, Ryan ALM, Inc.

I produced a post recently titled, “Parallels to the 1970s?” in which I discussed the challenging economic environment that existed during the 1970s as a result of two oil shocks and some sketchy decision making on the part of the US Federal Reserve. The decade brought us a new economic condition called stagflation, which was a term coined in 1965 by British politician Lain Macleod, but not widely used or recognized until the first oil embargo in 1973. Stagflation is created when slow economic growth and inflation are evident at the same time.

According to the graph above, the FOMC is beginning to worry about stagflation reappearing in our current economy, as they reduced the expectations for GDP growth (the Atlanta Fed’s GDPNow model has Q1’25 growth at -1.8%), while simultaneously forecasting the likelihood of rising inflation. Not good. If you think that the FOMC is being overly cautious, look at the recent inflation forecasts from several other entities. Seems like a pattern to me.

Yet, market participants absorbed the Powell update as being quite positive for both stocks and bonds, as markets rallied soon after the announcement that the FOMC had held rates steady. Why? There is great uncertainty as to the magnitude and impact of tariffs on US trade and economic growth. If inflation does move as forecasted, why would you want to own an active bond strategy? If growth is moderating, and in some cases forecasted to collapse, why would you want to own stocks? Aren’t earnings going to be hurt in an environment of weaker economic activity? Given current valuations, despite the recent pullback, caution should be the name of the game. But, it seems like risk on.

Given the uncertainty, I would want to engage in a strategy, like cash flow matching (CFM), that brought an element of certainty to this very confusing environment. CFM will fully fund the liability cash flows (benefits and expenses) with certainty providing timely and proper liquidity to meet my near-term obligations, so that I was never in a position where I had to force liquidity where natural liquidity wasn’t available. Protecting the funded ratio of my pension plan would be a paramount objective, especially given how far most plans have come to achieve an improved funding status.

I’ve written on many occasions that the nearly four decades decline in rates was the rocket fuel that drove risk assets to incredible heights. It covered up a lot of sins in how pensions operated. If a decline in rates is the only thing that is going to prop up these markets, I doubt that you’ll be pleased in the near-term. Bifurcate your assets into two buckets – liquidity and growth – and buy time for your pension plan to wade through what might be a very challenging market environment. The FOMC was right to hold rates steady. Who knows what their next move will be, but in the meantime don’t bet the ranch that inflation will be corralled anytime soon.

03.07.25
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Reminder: Pension Liabilities are Bond-like

By: Russ Kamp, CEO, Ryan ALM, Inc.

Milliman has released the results for their corporate pension index. The Milliman 100 Pension Funding Index (PFI), which tracks the 100 largest U.S. corporate pension plans showed deterioration in the funded ratio dropping from 106.0% to the 104.8% as of month-end. This was the first decline following four consecutive months of improvement. It was the fall in the discount rate from 5.60% to 5.36% during the month that lead to growth in the combined liabilities for the index constituents. As a reminder, pension liabilities (benefit payments) are just like bonds in terms of their interest rate sensitivity. As yields fall, the present value of those future promises escalate.

Milliman reported an asset gain of $18 billion during the month, but that wasn’t nearly enough to offset the growth in liabilities creating a $13 billion decline in funded status. “Gains in fixed income investments helped shore up the Milliman 100 pension assets, but were not strong enough to counter the sharp discount rate decline,” said Zorast Wadia, author of the PFI. Given the uncertain economic and capital markets environments, it is prudent to engage at this time in a strategy to effectively match asset and liability cash flows to reduce the volatility in the funded ratio. Great strides have been made by America’s private pensions. Allowing the assets and liabilities to move independently could result in significant volatility of the funded status leading to greater contribution expenses.

You can view the complete pension funding report here.

03.04.25
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What’s Your Duration?

By: Russ Kamp, CEO, Ryan ALM, Inc.

The recent rise in U.S. Treasuries had us redoubling our effort to encourage plan sponsors of U.S. pension plans to take some risk off the table by using cash flow matching (CFM) to defease a portion of the plan’s liabilities, given all the uncertainties in the markets and our economy. We were successful in some instances, but for a majority of Pension America, the use of CFM is still not the norm. Instead, many sponsors and their advisors have elected to continue to use highly interest rate sensitive “core” fixed income offerings most likely benchmarked to the Bloomberg Barclays Aggregate Index (Agg).

For those plan sponsors that maintained the let-it-ride mentality, they are probably celebrating the fact that Treasury rates have fallen rather significantly in the last week or so as a result of all of the uncertainties cited above – including inflation, tariffs, geopolitical risk, stretched equity valuations, etc. Their “core” fixed income allocation will have benefited from the decline in rates, but by how much? The Bloomberg Barclays Aggregate Index (Agg) has a duration of 6.1 years and a YTW of 4.58%, as of yesterday. YTD performance had the Agg up 2.78%. Not bad for fixed income 2+ months into the new year, but again, equities have been spanked in the last week, and the S&P 500 is down -3.1% in the last 5 days. So, maintaining that exposure sure hasn’t been beneficial.

Also, remember that the duration of the average DB pension plan is around 12 years. Given the 12-year duration, the price movement of pension liabilities, which are bond-like in nature, is currently twice that of the Aggregate index. A decline in rates might help your core fixed income exposure, but it is doing little to protect your plan’s funded status/funded ratio. The use of CFM would have insulated your plan from the interest rate risk associated with your pension liabilities. As rates fell, both assets and the present value of those liabilities would have appreciated, but in lockstep! The funded status for that segment of your asset allocation would have been insulated.

Why wait to protect your hard work in getting funded ratios to levels not seen in recent years? A CFM strategy provides numerous benefits, including providing liquidity on a monthly basis to ensure that benefits and expenses are met when due, reducing the cost to fund liabilities by 20% to 40% extending the investing horizon allowing for choppy markets to come and go with little impact on the plan, and protecting your funded status which helps mitigate volatility in contributions. Seems pretty compelling to me.

02.24.25
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ARPA Update as of February 21, 2025

By: Russ Kamp, CEO, Ryan ALM, Inc.

Welcome to the last week in February. Spring can’t arrive soon enough in New Jersey!

Last week the Milliman organization published its annual review of the state of multiemployer pension plans. The news was quite positive, but in digger deeper, it became apparent that the payment of the Special Financial assistance (SFA) was the primary reason for the improved funding ratios. Given how critically important the SFA is to the ongoing success of many of these plans, let’s look at what transpired during the previous week.

According to the PBGC’s weekly spreadsheet, there were no new applications filed as the eFiling portal remains temporarily closed. In addition, no applications were approved or denied, but there was one application withdrawn, as non-priority plan Aluminum, Brick & Glass Workers International Union, AFL-CIO, CLC, Eastern District Council No. 12 Pension Plan (the plan’s name is longer than the fund’s size is large) pulled its application seeking $10.6 million for 580 participants.

There was some additional activity though, as five plans were asked to repay a portion of the previously agreed SFA due to census errors. In total, these plans repaid $16.3 million representing just 1.06% of the grants received. To date, $180.8 million has been reclaimed from grants totaling $43.6 billion or 0.41%.

In other news, we had Bricklayers & Allied Craftworkers Local No. 3 NY Niagara Falls-Buffalo Chapter Pension Plan, added to the waitlist (#116). This is the first addition to the list since July 2024. This plan did not elect to lock-in the interest rate for discount rate purposes, joining a couple other plans that have kept their options open.

We should witness dramatic improvement in the Milliman funded ratio study next year, as about 7% (85 funds) were funded at <60% in 2024. There are currently 94 plans seeking SFA support. If granted, they should all see meaningful improvement in the funded status of their plans. As a result, we could have a situation in which the multiemployer universe becomes fully funded. How incredible. Now, let’s not do something silly from an investment standpoint that would jeopardize this improved funding.

02.21.25
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Milliman’s Multiemployer Study Released

By: Russ Kamp, CEO, Ryan ALM, Inc.

Milliman released the 2024 year-end results of its Multiemployer Pension Funding Study (MPFS). The MPFS analyzes the funded status of ALL U.S. multiemployer DB pension plans. As of December 31, 2024, Milliman estimated multiemployer plans have an aggregate funded ratio of 97%, up from 89% as of December 31, 2023. Impressive!

Milliman determined that the improved funded status was largely due to investment gains, but they also highlighted the critical contribution from the special financial assistance (SFA) granted under the ARPA. Milliman highlighted that as of year-end 2024, 102 plans have received nearly $70 billion in SFA funding, including $16 billion paid during 2024. Incredibly, without the support of SFA grants, the MPFS plans’ aggregate funded percentage at year-end 2024 would be approximately 89% or the same as the end of December 2023. As my chart below highlights, as of today, 109 plans have now received $71 billion in SFA grants.

Chart provided by Ryan ALM, Inc.

According to Milliman, “53% (627 of 1,193 plans) are 100% funded or more, and 84% (1,005) are 80% funded or better.” They also highlighted the more challenged members of this cohort, stating that “7% of plans (85) are below 60% funded and may be headed toward insolvency. Many are likely eligible and expected to apply for SFA in 2025.” As the chart above highlights, there still 93 plans going through the process of submitting applications with the PBGC to receive SFA support.

ARPA’s pension reform legislation has clearly been a godsend to many struggling multiemployer plans (roughly 10% of ME plans to date). That said, a review of the universe of all multiemployer plans points to terrific stewardship of the retirement assets on the part of a significant percentage of plans. My one concern is that the use of the return on Asset (ROA) assumption by most of these plans as the discount rate for plan liabilities is overstating the true funded status relative to a discount rate of a blended AA corporate rate used by the private sector. Milliman’s other DB pension plan studies have public sector plans at an 81.2% funded ratio and private plans at 105.8%.

02.11.25
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Corporate Pension Funding Improves Once Again – Milliman

By: Russ Kamp, CEO, Ryan ALM, Inc.

Milliman has provided its monthly update on the health of corporate America’s largest 100 pension plans with the release of the Milliman 100 Pension Funding Index (PFI). The good news continues, as the funded ratio for the PFI plans advanced last month from December’s 104.8% to 105.8% as of January 31, 2025. The improved funded ratio reflected both asset growth of $9 billion as a result of a 1.19% return for the index, while a minimal increase of 1 basis point in the discount rate (now 5.6%) reduced plan liabilities to $1.237 trillion. According to the Zorast Wadia, author of the Milliman PFI, the improved funded ratio marks a 27-month high.

Zorast went on to say, “With Fed rate cuts still a possibility this year, prudent asset-liability management remains a key directive for plan sponsors to preserve the funded status gains achieved thus far.” We don’t make interest rate forecasts at Ryan ALM, but we wholeheartedly agree with Zorast regarding the prudence of preserving the impressive funding gains realized during the last couple of years. Given the stretched equity valuations, taking risk of the table and securing the promised benefits through a cash flow matching strategy makes great sense.