Pension Funding Index August 2015

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By John W. Ehrhardt, Zorast Wadia | 06 August 2015

In July, the funded status of the 100 largest corporate defined benefit pension plans worsened by $16 billion as measured by the Milliman 100 Pension Funding Index (PFI). The deficit rose to $261 billion primarily due to a decrease in the benchmark corporate bond interest rates used to value pension liabilities. As of July 31, the funded ratio declined to 84.8%, down from 85.5% at the end of June. This breaks the upward momentum from the second quarter of 2015 where the funded ratio had increased for three consecutive months.

The projected benefit obligation (PBO), or pension liabilities, increased by $16 billion during July, raising the Milliman 100 PFI value to $1.718 trillion from $1.692 trillion at the end of June. The market value of assets increased by $10 billion as a result of July’s investment gain of 1.07%. The Milliman 100 PFI asset value increased to $1.457 trillion from $1.447 trillion at the end of June.

Over the last 12 months (August 2014-July 2015), the cumulative asset return for these pensions has been 6.5% and the Milliman 100 PFI funded status deficit has improved by $19 billion. The rise in funded status over the past 12 months is primarily due to increases in discount rates experienced throughout much of 2015.

If the Milliman 100 PFI companies were to achieve the expected 7.3% median asset return for their pension plan portfolios and the current discount rate of 4.14% were maintained in 2015 and 2016, we forecast the funded status of the surveyed plans would increase. This would result in a projected pension deficit of $247 billion by the end of 2015 and a projected pension deficit of $208 billion by the end of 2016.