Retirement Town Hall | Building a stable financial future during unstable times

Time 2020-12-17 11:03:43

Web Name: Retirement Town Hall | Building a stable financial future during unstable times

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Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans.In November, the market value of assets for the PFI plans improved by $77 billion thanks to massive investment returns for the month. November’s 5.03% investment gain tops the whopping 4.68% return of April, putting 2020 in the record books for having two of the top 10 highest return months in the same year.This improvement was countered by a 24-basis point decrease in the monthly discount rate, however, which saw pension liabilities increase by $65 billion. As a result, the funded status for the Milliman 100 PFI improved by only $12 billion, while the funded ratio climbed from 85.2% at the end of October to 86.2% as of November 30.November’s market returns were the highest gains of 2020 so far. But the low discount rate environment continues to be a drag on funding, with the Milliman 100 plans down $89 billion for the year overall. It would likely take both another stellar investment month, along with a significant discount rate increase, to end the year up from 2019. Looking forward, under an optimistic forecast with rising interest rates (reaching 3.12% by the end of 2021 and 3.72% by the end of 2022) and asset gains (10.5% annual returns), the funded ratio would climb to 103% by the end of 2021 and 121% by the end of 2022.  Under a pessimistic forecast (1.82% discount rate by the end of 2021 and 1.22% by the end of 2022 and 2.5% annual returns), the funded ratio would decline to 79% by the end of 2021 and 73% by the end of 2022.To view the complete Pension Funding Index, click here. To see the 2020 Milliman Pension Funding Study, click here.Milliman today released the results of its 2020 Public Pension Funding Study (PPFS), which analyzes funding levels of the nation’s 100 largest public pension plans, including an independent assessment on the expected real return of each plan’s investments.For Milliman’s 2020 PPFS, the estimated aggregate funded ratio of the nation’s largest public pension plans is 70.7% as of June 30, 2020, down from 72.7% reported in our 2019 study. The aggregate Total Pension Liability reported at the last fiscal year-ends (for most plans, this is June 30, 2019) was $5.27 trillion, growing from $5.07 trillion as of the prior fiscal year-ends. And between the 2019 and 2020 PPFS, over one-quarter of the plans (28) lowered their interest rate assumptions, with 90 of the plans now reporting assumptions of 7.50% or below.While the impact of the COVID-19 pandemic on public pensions’ financials is not fully clear, plans in this year’s PPFS experienced a huge swing in the estimated combined investment return, from -10.81% in Q1 2020 to 10.72% in Q2. More concrete evidence of the pandemic’s impact will be available once next year’s financial statements are published. Beyond market volatility, which has affected plan assets, we expect that furloughs and shutdowns as a result of the COVID-19 pandemic will impact pay levels and employee contribution amounts, while pressure on government budgets will make it hard to free up dollars to contribute to the plans to shore up their funding. But public plans have, by and large, shown great resiliency. They are designed and financed to function over a very long time horizon, and can take short-term setbacks in stride.To receive regular updates of Milliman’s pension funding analysis, email us. Defined benefit plan sponsors face a squeeze on funding status from two directions. For one, ongoing and renewed COVID-19 lockdowns worldwide will potentially reduce the value of investments of pension fund assets as stock markets could decline as a result of closed businesses. Second, pension funds aren’t keeping pace with contributions as workers are furloughed and contributions are reduced or delayed. Correspondingly, members of defined contribution plans face similar shortfalls in the funding of their own pension pots.While multinational companies face the key question of how far they should go towards helping employees financially, governments worldwide have instituted various programs or measures to provide short-term relief. In thisarticle, Milliman’sDanny Quantprovides a global roundup of these measures in various countries. Milliman today announced the latest results of its Milliman Pension Buyout Index (MPBI). As the Pension Risk Transfer (PRT) market continues to grow, it has become increasingly important to monitor the annuity market for plan sponsors that are considering transferring retiree pension obligations to an insurer. While we continue to analyze annuity purchase rates from all insurers, Milliman has also expanded its research to reflect the impact of competitive pricing on estimated buyout cost.During October, the average estimated cost to transfer retiree pension risk to an insurer increased by 60 basis points, from 102.3% of a plan’s total liabilities to 102.9% of those liabilities. This means the average estimated retiree PRT cost for the month is now 2.9% more than those plans’ retiree accumulated benefit obligation (ABO). Annuity purchase costs reflecting competition among insurers are even lower, at 100.3%, up from 100.2% in September.At just 100.3%, October’s competitive buyout pricing trends continue to offer an attractive de-risking strategy for some plans. Perhaps as a result, insurers have seen an uptick in pension risk transfer (PRT) activity in the third and fourth quarters of 2020, as plan sponsors complete transactions prior to year-end.The MPBI uses the FTSE Above Median AA Curve, along with annuity purchase composite interest rates from eight insurers, to estimate the average and competitive costs of a PRT annuity de-risking strategy. Individual plan annuity buyouts can vary based on plan size, complexity, and competitive landscape.Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans.In October, the funded status of these plans improved by $21 billion, primarily due to liability gains resulting from an increase in the benchmark corporate bond interest rates used to value those liabilities. The monthly discount rate rose 14 basis points for the month, from 2.57% to 2.71%. As a result, the PFI deficit declined to $285 billion, the lowest it’s been since March 2020. At the same time, October’s investment loss of 0.93% resulted in a $20 billion decrease to the market value of assets. The funded ratio for the Milliman 100 PFI rose slightly, from 84.4% at the end of September to 85.1% as of October 31.All eyes are on the presidential election this month, and what the results might mean for interest rates and investment returns going into year-end. As discount rates tick back up for the third consecutive month, executives should be paying close attention to market movements coming out of this election cycle.Looking forward, under an optimistic forecast with rising interest rates (reaching 2.81% by the end of 2020 and 3.41% by the end of 2021) and asset gains (10.5% annual returns), the funded ratio would climb to 87% by the end of 2020 and 103% by the end of 2021.  Under a pessimistic forecast (2.61% discount rate by the end of 2020 and 2.01% by the end of 2021 and 2.5% annual returns), the funded ratio would decline to 84% by the end of 2020 and 77% by the end of 2021.To view the complete Pension Funding Index, click here. To see the 2020 Milliman Pension Funding Study, click here. Milliman today announced the latest results of its Milliman Pension Buyout Index (MPBI). As the Pension Risk Transfer (PRT) market continues to grow, it has become increasingly important to monitor the annuity market for plan sponsors that are considering transferring retiree pension obligations to an insurer. While we continue to analyze annuity purchase rates from all insurers, starting this month Milliman has expanded its research to reflect the impact of competitive pricing on estimated buyout cost, and added two new insurers to our index: Massachusetts Mutual Life Insurance Company (MassMutual), and Banner Life Insurance Company (Legal General America).During September, the average estimated cost to transfer retiree pension risk to an insurer decreased by 60 basis points, from 102.9% of a plan’s total liabilities to 102.3% of those liabilities. This means the average estimated retiree PRT cost for the month is now 2.3% more than those plans’ retiree accumulated benefit obligation (ABO). Annuity purchase costs reflecting competition among insurers are even lower at 100.2% (down from 101.0% in August).At just 100.2%, September’s low competitive buyout rate indicates that some plans may have been able to transfer pension risk at a cost that is only a fraction higher than the plan’s accounting liability. Similarly, September’s average buyout rate, at 102.3%, is the lowest we’ve seen since launching Milliman’s Pension Buyout Index.The MPBI uses the FTSE Above Median AA Curve, along with annuity purchase composite interest rates from eight insurers, to estimate the average and competitive costs of a PRT annuity de-risking strategy. Individual plan annuity buyouts can vary based on plan size, complexity, and competitive landscape. This website uses cookies to provide you with an optimized experience. 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