Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.
Milliman Reports Record Pension Funding Drop
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.You Might Also Like:
None of the Largest US Corporate Pension Funds are Less Than 75% Funded, Per Milliman
Julie Su’s Nomination for Secretary of Labor Passes Senate Committee
The Factors at Play in IBM’s Shift to a Cash Balance Plan Reviewed
« Several Pennsylvania Government Pension Plans to Receive State Aid