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Positive Signs in DB Financing Seesaw

Practice Management

Spring can be a time of explosive growth—and April, as well as the first quarter of 2022, proved that to be the case for private-sector pension plan funding, recent reports indicate. And in the process, liabilities continued to fall. 

The funded status surplus for the plans measured by the Milliman 100 Pension Funding Index—which gauges the finances of the 100 largest corporate defined benefits plans—has been improving consistently in the first quarter, says the consulting and actuarial firm Milliman. The surplus doubled from Feb. 28 to March 31, and grew by another $48 billion in April. 

Measure Feb. 28, 2022 March 31, 2022 Change, Feb.-March
Funding Surplus $43 billion $86 billion +$43 billion

 

Furthermore, the funded ratio grew by 2.7 percentage points from 102.5% at the start of the year to 105.2% by March 31. And it accelerated further in April.

Measure February 2022 March 2022 Change, Feb.-March April 2022 Change, March-April
Funded Ratio 102.5% 105.2% +2.7 percentage points 106.7% +1.5 percentage points

 

Similarly, LGIM America reports that funded ratios for the pension plans it monitors improved in April. The ratio stood at 96.3% on March 31, they say, and at 97.2% on April 30. 

Why?

Milliman says that an increase in basis points was a key factor behind the increase in funding and improved funded status. They report that basis points grew in the first quarter, and that the increase was even more pronounced in April. In fact, they say, the increase in basis points in April was the highest since November 2018. 

Measure Feb. 28, 2022 March 31, 2022 Change, Feb.-March Change, Jan. 1-March 31 April 30, 2022 Change, March-April
Discount Rates 3.36% 3.62% +0.26 percentage points +0.82 percentage points 4.30% +0.78 percentage points

 

LGIM also attributes the improved funded status it found to rising basis points. 

Pension Liabilities

Pension benefit obligations—a.k.a. pension liabilities—are consistently falling, says Milliman. They fell to $1.652 trillion for the Milliman 100 in the first quarter, and by another $133 billion in April. For its part, LGIM found that overall liabilities for the average plan it monitors fell by 7.1%, and those for the traditionally invested plan it monitors dropped by approximately 6.3%.

Assets

While obligations fell and funded status improved, there was some bad news too. Milliman reports that the asset value of he Milliman 100 dropped by $16 billion to $1.738 trillion by March 31. The market value of assets fell by another $85 billion in April.