Index authors John Ehrhardt and Zorast Wadia say the funded status of the 100 largest corporate defined benefit pension plans improved by $3 billion during October, with the funded ratio increasing to 91.9% from 91.5% at the end of September. The deficit declined from $129 billion to $126 billion at the end of September, due to a robust investment gain of nearly 2.4% during October.
The index also shows the projected benefit obligation, or pension liabilities, increased to $1.556 trillion from $1.527 trillion at the end of September. This change is based on a 13-basis-point decrease in the monthly discount rate to 4.67% for October, from 4.80% for September.
Ehrhardt and Wadia say the market value of assets increased by $31 billion as a result of October’s investment gain of 2.36%. The index’s asset value climbed to $1.429 trillion, up from $1.398 trillion at the end of September. By comparison, the “2013 Milliman Pension Funding Study” reported that the monthly median expected investment return during 2012 was 0.60% (7.5% annualized). October’s investment return was the best of the year thus far, say Ehrhardt and Wadia, and follows September’s above average return of 2.27%.
The index indicates that over the last 12 months (November 2012 to October 2013), the cumulative asset return for these pensions has been 9.8% and the index’s funded status deficit has improved by $392 billion, primarily due to rising interest rates. The discount rate as of October 31, 2012 was 3.96%, and ranked among the lowest ever in the 13-year history of the index. The funded ratio of the Milliman 100 companies has improved over the past 12 months, moving from 72% to 91.9%.