Falling stock prices and interest rates took their toll on the 100 largest U.S. corporate pensions in January, reversing some of the gains made in 2013.
The Milliman 100 Pension Funding Index found that the funding ratio of the plans fell from 95.2 percent to 91.2 percent, which translated to a $67 billion rise in unfunded liabilities to a total of $140 billion.
A decrease in the discount rate, the figure used to calculate future liabilities, from 4.83 percent to 4.55 percent fueled a $60 billion rise in unfunded obligations. The net value of assets fell by $7 billion for the month.
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Still, the pension funds are in much better shape than they were at the end of January 2013 when the funded ratio was at 81.3 percent.
"After a win-win year that combined market growth and cooperative interest rates, we're back to the lose-lose ways where assets fall and liabilities increase," said John Ehrhardt, co-author of the Milliman Pension Funding Index, in a statement. "Hopefully this is just a speed bump on the way to 100 percent pension funded status. Unfortunately we're not quite as well positioned to achieve full funded status now as we were at the end of the year."
Despite the bumpy month, Milliman still sees some room for optimism and believe the pension funds will grow stronger over the next two years. It said that if the expected median asset return over that period was the 7.5 percent the firm forecast and the discount rate remained at it current level, the funds would have a surplus of $29 billion by the end of 2015.
If interest rates rise, as many industry watchers expect as the Federal Reserve unwinds its stimulus program, unfunded liabilities could drop further.
The Milliman index tracks the 100 largest defined benefits plans sponsored by U.S. corporations. They had total assets of $1.443 trillion at the end of January.
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