Milliman Inc. says falling interest rates have hurt funding levels at large U.S. corporate pension plans, but that even modest increases rates could push funding levels way over 100%.
The ratio of assets to liabilities at 100 large corporate plans fell to 88.2% at the end of 2020, down from 89.8% a year, the Seattle-based firm reports.
Assets increased to $1.7 trillion, from $1.6 trillion, but projected benefit obligations increased to about $2 trillion, from $1.8 trillion, according to Milliman calculations.
The discount rates used in benefit obligation forecasts, which are related to interest rates, fell to 2.46% at the end of 2020, from 3.2% a year earlier.
If rates increased to 3.06% by the end of this year, and to 3.66% by the end of 2022, then the funded ratio for the large corporate plans would increase to 104% by the end of 2021, and to 123% by the end of 2022, according to Milliman.
But Milliman found that the average pension funding level at 100 large public defined benefit pension plans increased to 78.6% at the end of 2020, up from 74.9% at the end of 2019, and up from a low of 66% in March 2020, when investors were seeing COVID-19-related lockdowns.
Funding levels improved partly because investment returns have been strong since the first quarter.
Meanwhile, the cost of the group annuities purchased to fund pension plan obligation buyouts, or shifts of pension benefits responsibility to life insurers, fell to 99.4% of the estimated liability total in November 2020, from 104.3% at the beginning of the year, in part because of strong insurer interest in the pension risk transfer market, according to another series of Milliman reports.
In other pension, retirement plan and group annuity news:
Ameritas, Lincoln, Nebraska, has introduced a 403(b) defined contribution retirement plan program for nonprofit employers, to complement its 401(k) plan program.
The company also has added an Ameritas GPS retirement plan investment platform, with support from Matrix Trust Company.
The program gives participants the ability to choose their own services and investments, and it also offers a number of planning options, such as several fixed-income investment options, according to Ameritas.