A Milliman news release about its seventh annual pension funding study said the 100 large DB plans examined reached nearly 100% funding over the year, fueled by strong 2006 investment returns. At the same time, increases in interest rates over the year moderated pension obligations slightly, the study said. The plans had aggregate assets of nearly $1.3 trillion and an annual pension cost of $26.4 billion.
“This is very good news,” said John Ehrhardt, Milliman consulting actuary and an author of the study, in the press announcement. “The losses we saw in 2001 and 2002 have been almost completely reversed, and the health of American defined benefit pension plans significantly improved last year.”
According to Milliman, the average annual return on the pension assets of the plans considered was 12.8%, which bested expected returns by almost 450 basis points. Over the past four years the plans have averaged a 13.9% annual rate of return. However, since the end of 1999, the plans have earned an average of only 5.7% with an expected return of 8.9%.
Under new accounting rules, companies are required to post the funded status of their pension plans and other post-retirement benefits on their balance sheets. For 2006 the after-tax charge to shareholder equity for the 100 companies was $133 billion. Of the 100, 89 adopted the new accounting rules in 2006 and the remainder plans to adopt them this year.
Milliman said that pension expense was ahead by $1.5 billion during 2006, for the 100 companies. After steadily increasing for the past five years from a net pension income of $13.6 billion in 1999, Milliman believes pension expense is poised for an aggregate decline during 2007.
The complete study is here .