DB Plans' Funding Deficit Drops $24B in July

August 7, 2013 (PLANSPONSOR.com) – In July, large defined benefit plans experienced a $26 billion increase in asset value and a $2 billion increase in pension liabilities.

According to the Pension Funding Index from Milliman, which looks at 100 of the country’s largest defined benefit pension plans, these changes mean the pension funding deficit dropped from $182 billion at the end of June to $158 billion at the end of July.

“The last 12 months were the best 12-month period for corporate pension funded status in the history of our study,” said John Ehrhardt, co-author of the index. “We’ve seen gains in nine out of the last 12 months for a total improvement of $388 billion. Just to put that improvement in its proper perspective, consider that the total projected benefit obligation for these 100 pensions stood at $762 billion when we started analyzing these 100 plans 13 years ago. This has been a historic rally for pensions, and hopefully it will continue.”

Year to date, assets have improved by $60 billion and the projected benefit obligation has been reduced by $172 billion, resulting in a $233 billion improvement in funded status and increasing the funded ratio to 89.7%.

Looking forward, said Ehrhardt, if the 100 pension plans studied by Milliman were to achieve the expected 7.5% median asset return for their pension plan portfolios and if the current discount rate of 4.73% were maintained, funded status would improve, with the funded status deficit narrowing to $128 billion (91.7% funded ratio) by the end of 2013 and $44 billion (97.2% funded ratio) by the end of 2014.

The index projects the funded status for the 100 pension plans included in the Milliman analysis, reflecting the monthly impact of market returns and interest-rate changes on pension funded status, utilizing the actual reported asset values, liabilities and asset allocations of the companies’ pension plans.

The full index document can be found at http://ow.ly/4xFIt.