The funded status of the 100 largest corporate defined benefit pension plans eroded slightly last month, falling from 85.3 percent in June to 85 percent in July, following a brief uptick from May to June.
That's the word from the latest Milliman 100 Pension Funding index report on the condition of the largest U.S. corporate funds.
"Over the last 12 months (August 2013 to July 2014), the cumulative asset return for these pensions has been 11 percent but the Milliman 100 PFI funded status deficit has worsened by $36 billion," Millman said. "The drop in funded status over the past 12 months is primarily due to the decline in interest rates. Since July 31, 2013, the discount rate has dropped 63 basis points to 4.10 percent from 4.73 percent."
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Milliman, an actuarial firm, said the market value of the 100's asset base fell by 0.24 percent, resulting in an $8 billion decrease, to $1.451 trillion. Milliman noted that the monthly expected investment return in 2013 was 0.6 percent, or 7.4 percent on an annualized basis.
If the current discount rate of 4.10 percent and the projected 7.4 percent asset return were to be maintained during 2014 and into 2015, the result would be a funded ratio of 86.1 percent by year-end 2014 and 88.2 percent by year-end 2015.
"Under an optimistic forecast with rising interest rates (reaching 4.35 percent by the end of 2014 and 4.95 percent by the end of 2015) and asset gains (11.4 percent annual returns), the funded ratio would climb to 90 percent by the end of 2014 and 103 percent by the end of 2015," Millman said.
"Under a pessimistic forecast with similar interest rate and asset movements (3.85 percent discount rate at the end of 2014 and 3.25 percent by the end of 2015 and 3.4 percent annual returns), the funded ratio would decline to 82 percent by the end of 2014 and 75 percent by the end of 2015."
Twelve months ago, the ratio stood at 86 percent. The funded ratio reached a 12-month high of 88.3 percent in December and a low of 84.5 percent in May.
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
