The consulting and actuarial firm’s Pension Funding Index (PFI) tracks the 100 largest DB plans in the U.S., also known as the Milliman 100. The PFI finds that for June, the funded status of these DB plans increased by $14 billion. The deficit decreased to $252 billion from $266 billion at the end of May, due to investment gains.
As of June 30, the funded ratio increased to 85.3%, up from 84.5% at the end of May. However, the funded ratio has still decreased from 88.3% as of December 31, 2013. June was the first month in 2014 when discount rates increased, but only by 0.02%. The strong year-to-date asset performance has mitigated deeper funded status erosion, according to Milliman.
The PFI also shows that the projected benefit obligation (PBO), or total pension liabilities, decreased by $3 billion during June, lowering the Milliman 100 PFI value to $1.711 trillion. The PBO change resulted from an increase of two basis points in the monthly discount rate to 4.08% for June, from 4.06% for May. Prior to June 2014, the last time the discount rate had increased was during November 2013 when it stood at 4.78%.
The market value of assets increased by $11 billion as a result of June’s investment gain of 1.06%. The Milliman 100 PFI asset value increased to $1.459 trillion, up from $1.448 trillion at the end of May.
The PFI notes that the the first half of 2014 has been characterized by decreasing discount rates along with asset performance ahead of expectations. Discount rates have fallen by 60 basis points during the first half of 2014 and that has driven a year-to-date liability increase of $122 billion. Plan assets earned above-expected returns for four out of the first six months of the year and have a 5.87% investment gain, totaling $56 billion. The quarter ended June 30, 2014, saw the funded status deficit increasing to $252 billion from $244 billion. The funded ratio of the Milliman 100 companies only slightly decreased to 85.3% at the end of June from 85.4% at the end of March as most of the discount rate erosion had occurred during the first quarter of 2014.
From July 2013 to June 2014, the PFI finds that the cumulative asset return for these pensions has been 14%, and the Milliman 100 PFI funded status deficit has improved by $15 billion. The strong asset performance experienced over the last 12 months has fueled the funded status improvement, mitigating the effects of interest rate decreases. Since June 30, 2013, the discount rate has dropped 66 basis points to 4.08% from 4.74%. The funded ratio of the Milliman 100 companies has marginally increased over the past 12 months to 84.9% from 85.3%.
The results of the Milliman 100 Pension Funding Index were based on the actual pension plan accounting information disclosed in the footnotes to the companies’ annual reports for the 2013 fiscal year and for previous fiscal years.
More information about the June index can be found here.