The funded ratio of the 100 largest corporate pension plans increased for the third month in a row in November, nearing 94 percent.
According to data from the Milliman 100 Pension Funding Index, the pension deficit is below $100 billion for the first time in five years as the funded status increased by $34 billion during November.
The improvement came as the benchmark corporate bond interest rates used to value pension liabilities rose at the end of October. Asset returns also improved in November, exceeding expectations, which contributed to the funding improvement in November.
Projected benefit obligation or pension liabilities decreased to $1.533 trillion from $1.556 trillion at the end of October, according to Milliman. The change came as a result of an 11-basis-point increase in the monthly discount rate to 4.78 percent for November from 4.67 percent in October.
The market value of assets increased by $11 billion as a result of November’s investment gain of 0.88 percent. The Milliman 100 PFI asset value climbed to $1.440 trillion, up from $1.429 trillion at the end of October. The median expected investment return during 2012 was 0.60 percent or 7.5 percent annualized.
Pension assets have achieved 10.38 percent investment gain in 2013 so far, so Milliman predicts that the FY 2013 investment return will exceed the annual expected return of 7.5 percent for the fourth time in five years.
Milliman predicts that if the discount rate stays at least where it is at 4.78 percent through 2015 and the pension portfolios of the top 100 achieve 7.5 percent returns, it would result in a pension surplus by the end of 2014 and a projected pension surplus of $92 billion or a funded ratio of 105.9 percent by the end of 2015.
Rising interest rates could push all of those numbers higher in 2015, the report stated.