Largest Corporate Pensions Lost Ground in July

August 15, 2014 (PLANSPONSOR.com) – The funded status of the largest corporate defined benefit (DB) pension plans decreased by $5 billion during July, according to data from Milliman, Inc.

The Milliman Pension Funding Index (PFI) tracks the nation’s 100 largest corporate-sponsored defined benefit pension plans and is updated monthly. During the month of July, these plans experienced a $3 billion decrease in pension liabilities and an $8 billion decrease in asset values, resulting in a $5 billion increase in the pension funding deficit.

By the end of June, the deficit rose to $257 billion, primarily due to declines in equity and fixed-income returns. As of July 31, the funded ratio declined marginally to 85.0%, down from 85.3% at the end of June.

The projected benefit obligation (PBO) decreased by $3 billion, lowering the Milliman 100 PFI liability value to $1.708 trillion, down from $1.711 trillion at the end of the previous month. The PBO change resulted from an increase of two basis points in the monthly pension contribution discount rate, which reached 4.10% for July, up from 4.08% in late June. July marked the second consecutive month where the discount increased. Rising discount rates have the effect of lowering the amount of contributions required today to fund benefits years down the road, Milliman explains. 

The market value of assets held by the Milliman 100 pension plans decreased by $8 billion as a result of July’s investment loss of -0.24%. As a result, the Milliman 100 PFI asset value decreased to $1.451 trillion, down from $1.459 trillion at the end of June.

From August 2013 to July 2014, the Milliman 100 PFI funded status deficit has worsened by about $36 billion. 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% from 4.73%. The funded ratio of the Milliman 100 companies has decreased over the past 12 months to 85.0% from 86.0%.

The results of the Milliman 100 Pension Funding Index are 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 July index findings can be viewed here.

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