2024 Corporate Pension Funding Study (2024)

The 2024 edition of the Milliman CorporatePension Funding Study (PFS) is our 24th annualanalysis of the financial disclosures of the 100 U.S.public companies sponsoring the largest definedbenefit (DB) pension plans. These 100 companiesare ranked highest to lowest by the value of theirpension assets as of the end of fiscal year (FY)2023. These values have been reported to thepublic, to shareholders, and to the U.S. federalagencies with an interest in such disclosures.

Who are the Milliman 100 companies?

The Milliman 100 companies are the 100 U.S.public companies with the largest DB pensionplan assets for which a 2023 annual reportwas released by March 10, 2024.

The plans in this study represent employersacross multiple business sectors, includingcommunications, healthcare, financial services,industrials, energy, technology, utilities, andothers. The total value of the pension planassets of the Milliman 100 companies was$1.32 trillion at the end of FY2023.

Figure 2: Total market value of assets ($ billions)

Pension funding overview

The funded ratio of the Milliman 100 pension plans decreasedslightly during FY2023 to 98.5% from 99.4% at the end ofFY2022. The 7.2% investment return was not quite enoughto keep up with the growth in liabilities—which was amplifiedby the 17 basis point decrease in liability discount rates. Thisresulted in a slight increase to the pension deficit from$8.5 billion to $19.9 billion. This is still much better, however,than in years 2008 to 2020, when the funding deficit rangedfrom $188 billion to $382 billion. A deficit of $19.9 billion thisyear put corporate DB plans of the Milliman 100 companieswithin striking distance of achieving full funding.

Figure 3 shows how the aggregate funded ratio has changedsince 2000.

The 0.9% decrease in the FY2023 funded ratio broke the streakof improvements seen over the prior six years. Note that therehas not been a funding surplus at fiscal year-end since the105.8% funded ratio in FY2007.

Figure 4 breaks down the 2023 year-end funded ratio for all theplans in the study.

In 2023 IBM made big news in the pension world by announcingit was going to cease making employer contributions into itsU.S. 401(k) plan and instead reopen its defined benefit pensionplan for employees. IBM had a significant pension surplusin its U.S. defined benefit pension plan, and by making thischange, it’s now able to access that surplus funding to coverits retirement benefit contributions. We estimate that about34 companies (in addition to IBM) have frozen U.S. pensionplans with excess assets. A desire to tap into the surplusesto see immediate cash savings may drive more companiesto shift spending strategies from defined contribution todefined benefit vehicles for their employer-provided retirementbenefits. If all of these companies made this switch it couldfree up a combined $37.7 billion in savings that could go toshareholders or other business initiatives.

Comparison to the Milliman 100 PensionFunding Index

Our Pension Funding Study FY2023 funded ratio of 98.5%was lower than what we projected in the January 2024 editionof the Milliman 100 Pension Funding Index (PFI). The primaryreason for the lower actual funded ratio at the end of FY2023was lower actual investment returns for the Milliman 100companies than projected.

There are also differences in methodology between theresults reported in our annual study versus our projectedmonthly index; therefore, a match is not expected. The annualPFS funded ratio is aggregating plans with different fiscalyear ending dates and different discount rates, whereas themonthly PFI makes normalizing adjustments to approximatethe values of all 100 companies as of the same measurementdate using the same average discount rate.

Return and liability expectations

Pension funds in 2023 had investment returns very close totheir assumed long-term expected returns. As a percentageof the market value of assets, we estimate the Milliman 100companies’ plans returned 7.2% on average, which was slightlyhigher than the average long-term assumed rate of returnof 6.4%. On a dollar basis, however, the aggregateinvestment return of $87.8 billion, as reported in the assetreconciliations, came in just under the expected return of$88.0 billion, as reported in the net periodic pension cost. Wesuspect this discrepancy is due to the asset smoothing thatplan sponsors can use when determining the market-relatedvalue of assets, which is used in the calculation of the expectedreturn on assets. Given the large asset loss in FY2022, manyplans will have market-related values of assets that are notablyhigher than the market value of assets in FY2023, resultingin higher expected return on assets calculations. So, despite estimated actual rates of return for FY2023 being higherthan the assumed rates of return, the plans in aggregateexperienced a net $0.2 billion investment loss for FY2023.

Liabilities also came out quite close to expected. Discountrates were relatively stable in FY2023, with the averagediscount rate for plans in the study only decreasing by 17basis points from 5.18% to 5.01%. This caused anincrease in the projected benefit obligations (PBOs) of theplans and, after accounting for the other typical liabilitychanges (interest cost, service cost, benefit payments,settlements, etc.), the total FY2023 PBO of $1.34 trillion isquite close to the $1.32 trillion at FY2022.

Contributions, pension expense, and PRT programs

During FY2023, pension settlements or pension risk transfer(PRT) programs continued to be used as financial costmanagement tools by plan sponsors, although the volume ofactivity among the Milliman 100 companies was noticeablydown. The primary types of PRT used were annuity purchasesand lump-sum windows, but these figures may also includeother settlements such as ongoing lump-sum payments fromplans. Among the Milliman 100 pension plans, settlementpayouts totaled an estimated $19.8 billion in FY2023, downfrom $35.5 billion in FY2022.

Total plan sponsor contributions of $16.5 billion in 2023 werelower than the 2022 contributions of $19.7 billion. Thesenumbers pale in comparison to 2017 and 2018, when plansponsor contributions hit record highs of $61.1 billion and$57.9 billion, respectively.

Pension expense under Accounting Standards Codification Subtopic 715 reverted in2023 back to an income statement debit (decrease to companyearnings), with a charge of $1.7 billion in FY2023,compared to the pension income of $7.0 billion in FY2022. Thepension incomes seen in FY2021 and FY2022 were rare, as theFY2003-FY2020 periods all saw pension expenses.

The average expected investment return assumption increasedfor FY2023 to 6.4% from 5.8% in FY2022. This is the firsttime we’ve seen this assumption increase in this study! Overthe past two decades there had been a steady decrease inexpected returns as interest rates declined and plans shiftedtheir allocations more heavily to fixed-income investments. Afterthe large investment losses in 2022, however, higher yields oninvestments allowed most plan sponsors to adjust upward theirexpected investment return assumption.

Other postemployment benefits

In addition to DB pension plans, the PFS tracks the actuarialobligations of postretirement healthcare benefits. Accumulatedpostretirement benefit obligations (APBOs) have been trendingdownward for the past couple of decades. In FY2023, this trendcontinued as APBOs decreased to $111.9 billion from theirFY2022 level of $115.3 billion.

Detailed comments and illustrations follow in the remainderof the 2024 PFS. Various tables with historical values can befound in the Appendix.

Equities outperformed fixed-incomeinvestments and pension liabilities forthe fifth year in a row

The weighted average investment return on pension assetsfor the 2023 fiscal years of the Milliman 100 companies was7.2%, which was above their average expected rates of return of6.4%. Sixty-two of the Milliman 100 companies exceeded theirexpected returns in 2023.

At the end of FY2023, total asset levels were $1.320 trillion.This is $90 billion above the value of $1.230 trillion at the end ofFY2007, prior to the collapse of the global financial markets.

Figure 5 shows the investment return on plan assets for theMilliman 100 plans since 2003.

During FY2023, annuity purchases, lump-sum settlements,and regular benefit payments were more than offset byinvestment returns, contributions, and other adjustments,increasing the market value of assets by $5.7 billion.

The Milliman 100 companies’ estimated investment earningsfor FY2023 were $87.8 billion, which, in aggregate, were aclose match to the expected earnings of $88.0 billion. Forthe five-year period ending in 2023, investment performancehas averaged 5.6% compounded annually (only consideringplans with calendar-year fiscal years). There have only beenthree years of negative investment returns over the past 20years (2008, 2018, and 2022), contributing to an annualizedinvestment return of 6.4% over that period (again, onlyconsidering plans with calendar-year fiscal years).

For calendar-year fiscal year plans, the average discount ratedecreased by 28 basis points during 2023. We estimate that theirpension liabilities increased approximately 8% on an economicbasis (due to the passage of time and changes to discount rates,ignoring benefit payments and accruals). Plans with significantallocations to fixed income as part of a liability-driven investment(LDI) strategy typically have allocations to long-duration highqualitybonds. During 2023 these bonds saw asset returns ofabout 7%, closely tracking the increase in pension liabilities.

For the 86 companies sponsoring pension plans with calendaryearfiscal years, rates of return in 2023 ranged from 3.2% to16.6%, with an average of 8.2%. Generally, plans with greaterallocations to equities had higher investment returns in 2023.The 12 plans with equity allocations of at least 50% earned anaverage return of 12.7%, while the 19 plans with equity allocationsbelow 15% earned an average return of 6.0%. BerkshireHathaway, with a 62% allocation to equities, had the highestinvestment return of any of the companies in the study at 14.7%.

In prior years, investment allocations made by plan sponsors hadshowed a trend toward implementing LDI strategies. Generally,this involves shifting more assets into fixed-income securities.This trend appears to have continued in 2023. The fixed-incomeallocations in the pension portfolios increased slightly to anaverage of 53.5% at the end of FY2023, up from 51.1% at the endof FY2022. The percentage of pension fund assets allocated toequities, fixed income, and other investments was 23.7%, 53.5%,and 22.8%, respectively, at the end of FY2023, compared with25.1%, 51.1%, and 23.8%, respectively, at the end of FY2022.

Plans with higher allocations to fixed income generallyunderperformed the other plans in FY2023 (for the 86 calendaryearplans, those with at least 50% allocated to fixed incomeearned an average return of 7.6% compared with 8.2% overall).

Over the last five years, the plans with consistently highallocations to fixed income have underperformed the otherplans but experienced lower funded ratio volatility. Amongthe 86 companies in the Milliman PFS with calendar-yearfiscal years, 35 pension plans had fixed-income allocations greater than 40.0% at the end of FY2018 and maintained anallocation above 40.0% through FY2023. Over this five-yearperiod, these 35 plans experienced lower funded ratio volatilitythan the other 51 plans (an average funded ratio volatility of5.1% versus 7.4% for the other 51 plans) but earned a lowerfive-year annualized rate of return (an average of 4.0% versus5.9%). Plans with at least 50% allocation to fixed income haveunderperformed other plans in each of the last five years.

Since 2005, pension plan asset allocations to equities havedecreased to about 23.7%, from about 61.8%, while fixed-incomeallocations have increased to about 53.5% from about 28.6%.

Overall, allocations to equities decreased during FY2023,resulting in an average allocation of 23.7%. None of theMilliman 100 companies had increases to equity allocations ofmore than 10.0% in FY2023, while three companies decreasedtheir equity allocations by more than 10.0% in FY2023.

Overall allocations to fixed income increased slightly inFY2023, resulting in an average allocation of 53.5%. Twocompanies had decreases of more than 10.0% to their fixedincomeallocations, while seven companies increased theirfixed-income allocations by more than 10.0% in FY2023.

Other asset classes include real estate, private equity, hedgefunds, commodities, and cash equivalents. Specific details on howinvestments are allocated to the other categories are generallynot available in the U.S. Securities and Exchange Commission(SEC) filings of the companies. Overall, allocations to other assetclasses decreased in FY2023, resulting in an average allocationof 22.8%. A total of seven companies increased their allocationsby 5.0% or more to other asset classes during FY2023, while ninecompanies decreased their allocations by 5.0% or more.

Decreasing discount rates caused aslight increase in the pension deficit

Discount rates used to measure plan liabilities (specificallythe PBO), determined by reference to high-quality corporatebonds, decreased during 2023, thereby increasing liabilities.The average discount rate decreased to 5.01% at the end ofFY2023 from 5.18% at the end of FY2022.

This drop in discount rates, along with the annual service andinterest costs, were enough to offset the benefit payments toresult in the PBO increasing from $1.323 trillion at the end ofFY2022 to $1.340 trillion at the end of FY2023. This increasein the PBO was sufficient to offset the increase in assets, sothe funded ratio declined slightly from 99.4% to 98.5% inFY2023. Likewise, the funded deficit increased in FY2023from $8.5 billion to $19.9 billion. The combined effects ofchanges in assets and liabilities on the funded status areshown in Figure 9.

The total market capitalization for the Milliman 100companies decreased by 0.1%. The total pension deficitincreased from $8.5 billion to $19.9 billion, so the netresult was an increase in the unfunded pension liability asa percentage of market capitalization to 0.2% at the end ofFY2023 compared with 0.1% at the end of FY2022. Pension deficits represented more than10.0% of market capitalization for five of the Milliman 100companies in FY2023 (there were four such companies inFY2022). This is a substantial decrease from 40 in FY2011, theyear we started tracking this figure. Similarly, in FY2023, noneof the companies’ pension deficits exceeded 50.0% of marketcapitalization, compared to eight in FY2011. Since FY2011, wehave had investment returns exceeding expectations in eightout of 12 years, which could have contributed to elevated levelsof market capitalization.

Pension risk transfer activities continue

Plan sponsors continued to execute PRT activities in FY2023as a way of divesting pension obligations from their DB plansand corporate balance sheets, but the volume for the Milliman100 companies was down relative to FY2022. Large-scalepension buyout programs or lump-sum windows (with atleast $1 billion in settled assets) were transacted for four ofthe Milliman 100 companies as pension assets and liabilitieswere either transferred to insurance companies or paid outto participants. Note that some companies that were in theMilliman 100 in prior years have fallen out of the top 100 due tosettlement activity, and thus are not included in the statisticsreported in our study.

The 2023 PRT market decreased when compared with the 2022market for the Milliman 100 companies. For the 2023 PFS weestimate the dollar volume of PRT activities based on Form10-K disclosures for the 2023 fiscal year to be $19.8 billion,which primarily consisted of annuity purchases and lump-sumwindows. The estimated FY2023 dollar amount represents adecrease of $15.7 billion compared to the FY2022 reporteddollar volume of $35.5 billion.

Contribution income at its lowestpoint since 2001

The aggregate FY2023 cash contributions by plan sponsors ofthe Milliman 100 companies were $16.5 billion, a decrease of$3.2 billion from the $19.7 billion contributed in FY2022.

FY2023 Net Periodic Pension Cost

The FY2023 Net Periodic Pension Cost (aka pension expense)switched back from income to an expense, with total pensionexpenses of $1.7 billion for FY2023 compared to the $7.0billion pension income for FY2022. This is well below the $54.5 billion expense peak level in FY2012. Still, 47 companiesrecorded FY2023 pension income (i.e., a credit to earnings),which could be due to the higher assumed rates of return onassets assumptions used in FY2023 as discussed below.

Expected rates of return

In a first for this study, companies reversed a decades-longtrend and raised their expected rate of return on plan assets assumptions to an average of 6.4% for FY2023, as comparedwith 5.8% for FY2022. This is still well below the averageexpected rate of return assumption of 9.4% back in FY2000.

Eight of the Milliman 100 companies utilized an expected rateof return for FY2023 of at least 8.0%. This differs drasticallyfrom FY2000, in which all but two companies were above 8.0%(the highest was 10.90%).

Pension funding in 2024 and beyond

As of the end of March, equity markets were off to a greatstart in 2024 with the aggregate pension funded status entering surplusterritory. But withlingering inflation, uncertainty about the Federal Reserve’snext steps on interest rates, and the uncertain impacts ofinternational conflicts, the question is whether the fundedstatus gains of the Milliman 100 companies will be short-lived.Our expectations for pension funding for the Milliman 100companies in the coming year include:

• Plan sponsor contribution levels will be similar to 2023 given the improved funding outlook and possibility to stabilize funded status through enhanced asset and liability management (ALM).
• Pension expense (charge to plan sponsor income statements) is expected to be similar in FY2024 to what was recorded in FY2023, given the relatively small change in discount rates during 2023 and that asset returns were generally close to expectations.
• As the Federal Reserve contemplates interest rate cuts, it is important to not forget about inflation and possible recessionary impacts. The possibility of interest rates starting to decline in the second half of the year could have an impact on funded status and balance sheets by year-end.
• With the positive first-quarter returns seen in 2024 along with discount rate increases, the Milliman 100 companies are likely to be at an overall funding surplus. However, with economic and political uncertainty lingering, funded status oscillation can be expected at points during the year.
• Plan sponsor expected return on assets assumptions for purposes of U.S. GAAP pension expense calculations are likely to remain stable given the relatively large increases seen for 2023—the first time an increase was noted over the last two decades. Capital market assumptions for returns are also down slightly from last year, given the financial market rebound in 2023.
• We are likely to see plan sponsors continue with their investment glide path strategies as they further implement de-risking in 2024. This is especially true if we factor in the possibility of interest rate cuts in the second half of 2024. Interest rate cuts would raise pension liabilities but would also boost bond portfolio valuations, thereby stabilizing funded status for plan sponsors implementing asset-liability matching strategies.
• As funded status improves in 2024, we could see some plan sponsors follow IBM in reopening their frozen defined benefit plans for future benefit accruals. About 34 of the other Milliman 100 companies have surplus funding of their U.S. pension plans this year for a total surplus of $37.7 billion. These companies may stand to achieve balance sheet and cash savings by partially shifting their retirement spending strategies from defined contribution vehicles to those of defined benefits.
• Although pension risk transfer activities were significantly down for the Milliman 100 companies in 2023 relative to 2022, we could see continued interest from plan sponsors in 2024, while interest rates are still at relatively high levels, in making the business decision to exit the defined benefit space. Lump-sum windows, in particular, may be especially impactful for plan sponsors’ balance sheets and cash funding sources should interest rates come down later in the year from their present levels.
• The SECURE 2.0 legislation instituted a cap on future mortality improvement rates, which will reduce life expectancies and lower liabilities starting with valuations in 2024.

Appendix: Historical values

(All dollar amounts in millions. Numbers may not add up correctly due to rounding.)

Figure 17: Funded status

Figure 18: Return on assets

Figure 19: Pension cost

Figure 20: Asset allocations (by percentage)

Figure 21: Pension plan information by business sector

Figure 22: Other post-employment benefits (OPEB) funded status

About the study

The results of the Milliman 2024 Pension Funding Study (PFS) are based on the pension plan accounting information disclosedin the footnotes to the companies’ Form 10-K annual reports for the 2023 fiscal year and for previous fiscal years. These figuresrepresent the GAAP accounting information that public companies are required to report under Financial Accounting StandardsBoard (FASB) Accounting Standards Codification Subtopics 715-20, 715-30, and 715-60. In addition to providing the financialinformation on the funded status of their U.S. qualified pension plans, these footnotes may also include figures for the companies’nonqualified and foreign plans, both of which are often unfunded or subject to different funding standards than those for U.S.qualified pension plans. These foreign and nonqualified plans are included in our study, so the information, data, and footnotes donot represent the funded status of only the companies’ U.S. qualified pension plans under ERISA.

Fourteen of the companies in the 2024 Milliman Pension Funding Study (PFS) had fiscal years other than the calendar year.The companies included in the study are affected by mergers, acquisitions, and other corporate transactions during FY2023.Figures quoted from 2023 and earlier years reflect the 2024 composition of Milliman 100 companies and may not necessarilymatch results published in the 2023 or any prior Milliman PFS. Generally, the group of Milliman 100 companies selected remainsconsistent from year to year. Privately held companies, mutual insurance companies, and U.S. subsidiaries of foreign parents wereexcluded from the study.

The results of the 2024 study will be used to update the Milliman 100 Pension Funding Index (PFI) as of December 31, 2023, thebasis of which will be used for projections in 2024 and beyond. The Milliman 100 PFI is published monthly and reflects the effectof market returns and interest rate changes on pension funded status.

About the authors

Zorast Wadia, FSA, CFA, EA, MAAA, is a principal and consulting actuary in the New York office of Milliman. He has more than25 years of experience in advising plan sponsors on their retirement programs. Zorast has expertise in the valuation of qualifiedand nonqualified plans. He also has expertise in the areas of pension plan compliance, design, and risk management.Alan H. Perry, FSA, CFA, MAAA, is a principal and consulting actuary in the Philadelphia office of Milliman. He has more than30 years of experience in advising plan sponsors on asset allocation and financial risk management. Alan specializes in thedevelopment of investment policies by performing asset-liability studies that focus on asset mix, liability-driven investing, andrisk hedging.

Acknowledgments

The authors thank the following Milliman colleagues for their assistance in compiling the figures and editing the report for theMilliman 2024 Pension Funding Study: Lena Amano, Kunal Bhardwaj, Deepanshi Bhaskar, Adin Bookbinder, Francine Brazeau,Lincoln Bressor, Ryan Cook, Henny Damian, Leila Eltouny, Rebecca Driskill, Aarti Kakkar, Issh*ta Kedia, Nina Lantz, Mirella Lugo,Jeff Pike, Samridhi Sachdeva, Esther Schewel, Akshat Sukhija, Kangan Verma, and Jeremy White.