Milliman’s analysis of the 100 largest U.S. corporate pension plans showed a $22 billion slide in funded status, based on a $42 billion fall in asset values and a $20 billion decrease in pension liabilities. The funded status for these pensions decreased, from 84.9% to 83.4%. That dip in funding level is in line with Mercer’s figures, which saw a 2% dip in August.
The month’s investment losses sparked the deficit to rise, to $282 billion. The funded status loss was mitigated by the rise in the benchmark corporate bond interest rates used to value pension liabilities.
John Ehrhardt, co-author of the Milliman 100 Pension Funding Index, points to the month’s rocky equity market as the main driver of funded status movement, which is usually more significantly impacted by interest rates in a given month. “But the stock market volatility we saw in August stole the show,” he says. “For the year, these pensions had performed well on the asset side, but August erased all those gains.”
Looking forward, under an optimistic forecast with rising interest rates (reaching 4.43% by the end of 2015 and 5.03% by the end of 2016) and asset gains (11.3% annual returns), the funded ratio would climb to 87% by the end of 2015 and 100% by the end of 2016. Under a pessimistic forecast (4.03% discount rate at the end of 2015 and 3.43% by the end of 2016 and 3.3% annual returns), the funded ratio would decline to 81% by the end of 2015 and 74% by the end of 2016.
Milliman’s Pension Funding Index analyzes the 100 largest U.S. corporate pension plans.
The complete study can be seen on Milliman’s website.