January US corporate pension funded status climbs to 103.1 percent

During January, the Milliman 100 Pension Funding Index  (PFI) funding ratio rose from 102.1 percent at the end of December to 103.1 percent as of January 31. A return to rising discount rates – this month by 14 basis points, to 5.14 percent – fueled this result and drove US plan liabilities down from $1.337 trillion at the end of December to $1.316 trillion at the end of January. This change outweighed a small market loss of ‑0.30 percent in January as PFI plan assets dropped $10 billion to $1.356 trillion as of January 31. 

“After significant declines in discount rates in the fourth quarter of 2023, January saw some upward rate movement, which led to a modest improvement in the funding surplus,” says Zorast Wadia, author of the PFI. “But with expectations of rate cuts later this year, we could see plan sponsors shifting allocations further to fixed income to better match anticipated rises in pension liabilities.” 

Over the last 12 months (February 2023 to January 2024), the cumulative asset return for these pension plans was 4.44 percent, and yet the Milliman 100 PFI funded status surplus improved by $29 billion. Discount rate increases drove the funded status improvement as they climbed 29 basis points over the period. The funded ratio of the Milliman 100 companies increased to 103.1 percent from 100.8 percent over the past 12 months. 

Looking forward, under an optimistic forecast with rising interest rates (reaching 5.69 percent by the end of 2024 and 6.29 percent by the end of 2025) and asset gains (9.8 percent annual returns), the funded ratio would climb to 115 percent by the end of 2024 and 129 percent by the end of 2025. Under a pessimistic forecast (4.59 percent discount rate at the end of 2024 and 3.99 percent by the end of 2025 and 1.8 percent annual returns), the funded ratio would decline to 95 percent by the end of 2024 and 86 percent by the end of 2025. 

View the complete Pension Funding Index.