This marks the largest monthly drop in funded status during the 11-year history of the Milliman 100 PFI.
According to Milliman, the funded status decline was due to the two-fold effect of investment losses coupled with a decrease in corporate bond interest rates that are the benchmarks used to value pension liabilities. As of September 30, the funded ratio plummeted to 72.8% from 79.3% at the end of August. The funded status deficit increased from $315 billion to $439 billion. The funded status has eroded by more than $252 billion since June 30th. The third calendar quarter of 2011 has been the most significant three-month decline since the start of the financial crisis during the last quarter of 2008.
The projected benefit obligation (PBO), or pension liabilities, increased by $93 billion during September, raising the Milliman 100 PFI value to $1.614 trillion from $1.521 trillion at the end of August. The change resulted from a decrease of 42 basis points in the monthly discount rate to 4.54% for September from 4.96% for August 2011. 4.54% is the lowest discount rate in the 11-year history of the Milliman 100 PFI.
September’s $31 billion decrease in market value brings the Milliman 100 PFI asset value to $1.175 trillion, down from $1.206 trillion at the end of August, triggered by an investment loss of -2.43% for the month. By comparison, the Milliman 2011 Pension Funding Study, published in March, reported a 0.64% (8.00% annualized) median expected monthly investment return during 2010.
For the quarter that ended September 30, the cumulative asset return has been -4.81% and the cumulative increase in pension liabilities has been 14.22%. The result has been a funded status decline of $252 billion for the last quarter. The funded ratio of the Milliman 100 companies decreased to 72.8% from 87.0%. The pension assets would have to provide a 9.4% return by the close of the year just to meet the expected 8.0% return assumption.
Year-to-date (January 2011-September 2011), the cumulative asset return has been -1.31% and the Milliman 100 PFI funded status has decreased by $211 billion. For the past eight months, the funded ratio of the Milliman 100 companies decreased to 72.8% from 84.1%.More information is available at http://www.milliman.com/pfi.