Pension liabilities of the 100 largest corporate defined benefit pension plans fell by $23 billion in August while their corresponding assets improved by $11 billion, bringing the Milliman 100 Pension Funding Index (PFI) funded status deficit to $498 billion and a 72.4% funded ratio. Despite the improvement, the August 31 funded ratio remains well below its December 31, 2011, value of 78.7%.
The funded status improvement was primarily due to an increase in corporate bond interest rates, the benchmarks used to value pension liabilities. August’s discount rate increase comes after four consecutive months of interest rate declines. The projected benefit obligation (PBO), or pension liabilities, decreased by $23 billion during August, lowering the Milliman 100 PFI value to $1.808 trillion from $1.831 trillion at the end of July 2012. The change resulted from an increase of seven basis points in the monthly discount rate to 3.99% for August, from 3.92% for July.
The Milliman 100 PFI asset value increased by $11 billion during August, raising the value to $1.309 trillion from $1.298 trillion at the end of July. The increase was due to investment gains of 1.02% for the month.
If the Milliman 100 PFI companies were to achieve an 7.8% median asset return expected for their pension plan portfolios and the current discount rate of 3.99% were to be maintained during years 2012 through 2013, Milliman forecasts the funded status of the surveyed plans would increase. This would result in a projected pension deficit of $479 billion (funded ratio of 73.6%) by the end of 2012 and a projected pension deficit of $403 billion (funded ratio of 78.0%) by the end of 2013.
For purposes of this forecast, Milliman assumed 2012 aggregate contributions of $67 billion and 2013 aggregate contributions of $81 billion. The contribution assumptions have not been adjusted to reflect the potential impact of the Moving Ahead for Progress in the 21st Century Act (MAP-21), which includes pension funding stabilization provisions. More information is at www.milliman.com.