Results of Milliman’s latest Pension Funding Index, which analyzes the 100 largest U.S. corporate pension plans, show that these plans experienced a $35 billion decrease in funded status during February, due to a $5 billion decrease in asset values and a $30 billion increase in pension liabilities. The funded status for these pensions decreased from 80.8% to 79.1%.
The funded status deficit has ballooned by $68 billion so far in 2016, according to Milliman’s analysis. “The pension funding deficit continues to move in the wrong direction,” says Zorast Wadia, co-author of the Milliman 100 Pension Funding Index. “In January, poor asset performance drove declining funded status. In February, interest rates were the culprits. We’re off to a rough start in 2016.”
Looking forward, under an optimistic forecast with rising interest rates (reaching 4.56% by the end of 2016 and 5.16% by the end of 2017) and asset gains (11.3% annual returns), the funded ratio would climb to 89% by the end of 2016 and 102% by the end of 2017. Under a pessimistic forecast (3.56% discount rate at the end of 2016 and 2.96% by the end of 2017 and 3.3% annual returns), the funded ratio would decline to 73% by the end of 2016 and 66% by the end of 2017.