In March, the funded status of the 100 largest corporate defined benefit pension plans dropped by $20 billion as measured by the Milliman 100 Pension Funding Index (PFI). The deficit increased to $390 billion from $370 billion at the end of February primarily due to a drop in the benchmark corporate bond interest rates used to value pension liabilities. As of March 31, the funded ratio fell to 77.9%, down from 78.4% at the end of February.
The projected benefit obligation (PBO) increased by $50 billion during March, raising the Milliman 100 PFI value to $1.763 trillion. The change resulted from a significant decrease of 23 basis points in the monthly discount rate to 3.78% for March from 4.01% in February.
For the quarter ended March 31, assets experienced a net investment gain of 1.13%. Discount rates fell 38 basis points during the first quarter.
Over the last 12 months (April 2015-March 2016), the cumulative asset return for these pensions has been -0.67% and the Milliman PFI funded status has worsened by $36 billion. Discount rates experienced a small increase over the last 12 months, moving from 3.65% as of March 31, 2015, to 3.78% a year later. The funded ratio of the Milliman 100 companies has increased over the past 12 months to 77.9% from 80.6%.
If the Milliman PFI companies were to achieve the expected 7.2% median asset return for their pension plan portfolios and the current discount rate of 3.78% were maintained during years 2016 and 2017, we forecast the funded status of the surveyed plans would increase. This would result in a projected pension deficit of $368 billion by the end of 2016 and a projected pension deficit of $336 billion by the end of 2017.
This March PFI publication reflects the annual update of the Milliman 100 companies and their 2015 financial results included in the Milliman 2016 Pension Funding Study.