The funded status of the 100 largest corporate defined benefit pension plans improved by $106 billion in January.
This was the second-largest monthly funded status improvement since Milliman began its 100 Pension Funding Index 12 years ago.
According to Milliman, the $74 billion funded status decline in 2012 was wiped out and bettered by $32 billion and the deficit was reduced to $305 billion from $411 billion at the end of December 2012. The reduction was caused to a rise in the benchmark corporate bond interest rates used to value pension liabilities.
Strong January investment gains also helped to raise the funded ratio to 81.7 percent from 76.5 percent at the end of December 2012.
January’s $23 billion increase in the market value of assets brings the Milliman 100 PFI asset value to $1.36 trillion, up from $1.337 trillion at the end of December.
The projected benefit obligation (PBO), or pension liabilities, decreased by $83 billion during January, lowering the Milliman 100 PFI value to $1.665 trillion from $1.748 trillion at the end of December. The change resulted from an increase of 27 basis points in the monthly discount rate to 4.45 percent for January, from 4.18 percent for December.
Over the last 12 months (February 2012 to January 2013), the cumulative asset return for these pensions has been 8.54 percent and the Milliman 100 PFI funded status deficit has risen by $8 billion. The primary reason for the increase in the funded status deficit has been the lower trending discount rates seen throughout most of 2012. The discount rate as of January 31, 2012, was 4.71 percent. In spite of this, the funded ratio of the Milliman 100 companies has slightly increased over the past 12 months to 81.7 percent from 81.1 percent.
If the Milliman 100 PFI companies were to achieve the expected 7.8 percent (as per the 2012 pension funding study) median asset return for their pension plan portfolios and the current discount rate of 4.45 percent was maintained during years 2013 and 2014, Milliman forecasts the funded status of the surveyed plans would increase. This would result in a projected pension deficit of $234 billion (funded ratio of 86.1 percent) by the end of 2013 and a projected pension deficit of $150 billion (funded ratio of 91.1 percent) by the end of 2014. For purposes of this forecast, Milliman assumed 2012 aggregate contributions of $67 billion and 2013 and 2014 aggregate contributions of $81 billion.