The funded status deficit of the 100 largest corporate defined benefit (DB) pension plans increased by $15 billion in April, according to the Milliman 100 Pension Funding Index (PFI).
Milliman speculates that the $258 billion deficit at the end of April is due largely to a drop in the benchmark corporate bond interest rates used to value pension liabilities. Asset improvements helped to partially offset the full extent of liability increases.
As of April 30, the funded ratio fell to 84.7 percent, down from 85.3 percent at the end of March.
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The projected pension liabilities increased by $21 billion during April, raising the Milliman 100 PFI value to $1.685 trillion. The change resulted from a decrease of 10 basis points in the monthly discount rate, from 4.30 percent in March to 4.20 percent in April.
April's $6 billion investment gain in the market value of the pension assets to $1.427 trillion, up from $1.421 trillion at the end of March, helped to offset the liability increase.
Over the last 12 months, the cumulative asset return for these pensions has been 8.46 percent, and the Milliman 100 PFI funded status deficit has improved by $103 billion, the company said.
The main reason for the increase in the funded status has been the strong asset performance experienced throughout most of 2013. Discount rates rebounded from all-time lows during 2013, although they have changed their direction so far in 2014.
The discount rate on April 30, 2013, was 3.98 percent. The funded ratio of the Milliman 100 companies has increased over the past 12 months to 84.7 percent from 79.2 percent.
Moving forward, if the Milliman 100 PFI companies were to achieve the expected 7.4 percent median asset return for their pension plan portfolios and the current discount rate of 4.20 percent was maintained in 2014 and 2015, Milliman forecasts that the funded status of the surveyed plans would increase.
This would result in a projected pension deficit of $228 billion (with a funded ratio of 86.5 percent) by the end of 2014 and a projected pension deficit of $175 billion (with a funded ratio of 89.7 percent) by the end of 2015.
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