The funded ratio of U.S. corporate defined benefit pension plans declined to 98.5 per cent in fiscal 2023 from 99.4 per cent in 2022, according to a new report by Milliman Inc.

The report, which reviews the financial disclosures of the 100 largest U.S. public corporate DB plans, found their average return on investments was 7.2 per cent, with the average expected return increasing to 6.4 per cent from 5.8 per cent. Notably, 62 of the 100 plans exceeded their expected returns in 2023. The total value of the assets held by all plans in the study was US$1.32 trillion.

However, the report noted the investment gains couldn’t offset an increase in liabilities during the fiscal year, which was amplified by the 17-basis-points decline in liability discount rates from 5.18 per cent to 5.01 per cent.

Read: Average funded ratio of Canadian DB pension plans up 7% in Q1 2024: report

The average pension deficit increased from $8.5 billion in 2022 to $19.9 billion in 2023 and the report noted there hasn’t been a funding surplus at fiscal year-end since the 105.8 per cent funded ratio reported in fiscal 2007.

Pension settlements or pension risk transfer programs continued to be used as financial cost management tools by plan sponsors, although the volume of activity declined. Settlement payouts totalled an estimated $19.8 billion in 2023, down from $35.5 billion in fiscal 2022.

Total plan sponsor contributions of $16.5 billion were lower than the total 2022 contributions of $19.7 billion. These numbers pale in comparison to 2017 and 2018, when plan sponsor contributions hit record highs of $61.1 billion and $57.9 billion, respectively.

Looking ahead, the report noted the funded status gains of DB plans could be short-lived due to lingering inflation, uncertainty about the U.S. Federal Reserve’s next steps on interest rates and the uncertain impacts of international conflicts. Throughout 2024, DB plans are expected to continue implementing glide path strategies to pursue de-risking, said the report.

Read: Can IBM’s retirement benefit account revive the traditional DB pension plan?