A new analysis from Milliman finds its 100 Pension Funding Index (PFI) rose from the end of April to May 31, pushed by investment returns of 2.29%.
The Milliman 100 PFI increased from 103.1% to 103.4%, elevating the net market value of PFI plan assets by $22 billion for the month of May, to $1.296 trillion.
According to Milliman, the gains helped balance declines in discount rates in May, which fell by 15 basis points to 5.53%. The falloff caused plan liabilities to increase $18 billion to $1.253 trillion in May.
“May marks the fifth consecutive month of funding improvements, though the reason was the opposite of what we saw in April,” said Zorast Wadia, author of the PFI, in a statement. “While discount rates fell in May, driving up liabilities, robust market returns helped the Milliman PFI plan assets and funded ratio continue to rise.”
Milliman forecasts both optimistic and pessimistic outlooks heading into 2024 and 2025. Under a positive attitude that would see rising interest rates reach 5.88% by the end of 2024 and 6.48% by conclusion of 2025, along with annual asset returns of 10.4%, funded ratios would climb to 110% by 2024 and 123% by 2025.
In a negative forecast that includes a 5.18% discount rate at the end of 2024 and 4.58% by the end of 2025 and 2.4% annual returns, Milliman estimates funded ratios could decline to 98% by the end of 2024 and 89% by the end of 2025.
Milliman’s forecast comes as LIMRA released its own analysis of the U.S. Pension Risk Transfer market. According to LIMRA’s Group Annuity Risk Transfer Sales Survey, total pension risk transfer (PRT) premiums came in at $14.6 billion in Q1 2024—more than double compared to Q1 2023.
Moreover, LIMRA reports that 146 contracts were sold during the first quarter, covering nearly 200,000 participants.
Demand for PRTs continued to grow, with single-premium buy-out sales coming in at $14.2 billion in the first quarter, up 124% from 2023. There were 144 buy-out contracts in the first quarter, an increase of 24% from the first quarter 2023, as reported by LIMRA.
Additionally, there were two single-premium buy-in contracts reported in the first quarter, representing $435.6 million. There were no buy-in contracts in the first quarter of 2023.
Single premium buy-out assets reached $273.3 billion in the first quarter, up 14% from the prior year. Single premium buy-in assets were $7 billion for the quarter, 19% higher than in first quarter 2023. Combined, single premium assets were $280.3 billion, an increase of 14% year over year, according to LIMRA.
“Demand for PRT solutions continues as favorable economic conditions spur plan sponsors to de-risk their pension obligations. While there were a few jumbo deals driving the remarkable premium growth, the number of contracts sold was the highest first quarter results seen since LIMRA has been tracking sales, signaling broad plan sponsor interest,” said Keith Golembiewski, assistant vice president, head of LIMRA Annuity Research. “LIMRA expects this momentum to continue throughout 2024.”
SEE ALSO:
- Sanders, Cassidy, Ghilarducci Among Those Pushing Pensions in Washington This Week
- DB Pensions: Continued ‘Life Support’ More Likely than a ‘Full Recovery’
- Corporate Pension Plans Break Funded Status Streak
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.