Pension Funding Index January 2024
By Zorast Wadia
The funded status of the country’s 100 largest corporate pension plans, as measured by the Milliman 100 Pension Funding Index (PFI), experienced a modest improvement in 2023, driven by annual investment returns of 9.94%. Declining discount rates, particularly in the fourth quarter, and the corresponding liability (i.e., the projected benefit obligation) increase of 8.33% served to partially offset the asset gains, resulting in a funded status improvement of $4 billion for the year. This gain paled in comparison to 2022’s $63 billion funded status improvement, which was primarily driven by significant rises in discount rates that more than offset market declines.
In 2023, corporate pension plan assets rebounded as equity markets, led by the technology sector, posted strong returns. Discount rates experienced several ups and downs in 2023 before finally settling at 5.00%, 22 basis points (bps) lower than at the start of the year. For reference, the discount rate at the end of October 2023 of 6.20% was the highest in nearly 15 years. However, November and December saw a combined discount rate decline of 120 bps, ending the year at 5.00%.
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