The funded status of the 100 largest U.S. corporate pension plans rose 2.3 percentage points to 89.9% at the end of December from the year-earlier period, according to the Milliman 100 Pension Funding index.
Assets dropped 6% for the year to $1.462 trillion as of Dec. 31, due to poor market performance. However, liabilities also fell to $1.6 trillion, thanks to a discount rate increase of 66 basis points. In aggregate, these plans experienced a $56 billion improvement in funded status for the year.
"The fourth quarter's asset losses and stagnant discount rates derailed what had started out as an optimistic year for corporate pensions," said Zorast Wadia, co-author of the Milliman 100 PFI. "Looking ahead to 2019, with those asset losses and in spite of the discount rate improvement, we're likely to see pension expense increase in the coming year."
Under an optimistic forecast with interest rates reaching 4.8% by the end of 2019 and 5.4% by the end of 2020 and asset gains reaching 10.8% annual returns, Milliman predicts that the funded ratio would climb to 104% by the end of 2019 and 120% by the end of 2020.
However, under a pessimistic forecast, with a discount rate of 3.59% by the end of 2019 and 2.99% by the end of 2020, and 2.8% annual returns, Milliman predicts that the funded ratio would decline to 83% by the end of 2019 and 77% by the end of 2020.