Pension Funding Index December 2015

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By John W. Ehrhardt, Zorast Wadia | 04 December 2015

In November, the funded status of the 100 largest corporate defined benefit plans fell by $3 billion as measured by the Milliman 100 Pension Funding Index (PFI). The deficit widened to $286 billion due to flat investment performance of the assets of the Milliman 100 companies during November. As of November 30, the funded ration slipped back to 83.3%, from 83.5% at the end of October.

The market value of assets dropped by $3 billion as a result of November’s microscopic investment gain of 0.16%. This is coming off October, which boasted the highest monthly return for 2015 of 2.97%. The Milliman 100PFI asset value dropped to $1.429 trillion from $1.432 trillion at the end of October.

The projected benefit obligation (PBO) remained at $1.716 trillion, recording no change during November. This was due to static November benchmark corporate bond interest rates used to value liabilities. The discount rate remained steady at 4.16% for November, unchanged from October.

Over the last 12 months (December 2014- November 2015), the cumulative asset return for these pensions has been 2.13% and the Milliman 100 PFI funded status deficit has improved by $17 billion. The rise in funded status over the past 12 months is primarily due to the small uptick in the discount rates.

If the Milliman PFI companies were to achieve the expected 7.3% (as per the 2015 pension funding study) median asset return for their pension plan portfolios, and the current discount rate of 4.16% were maintained during years 2015 through 2017, we forecast the funded status of the surveyed plans would increase. This would result in a projected pension deficit of $248 billion (funded ration of 85.6%) by the end of 2016 and a projected pension deficit of $208 billion (funded ratio of 88%) by the end of 2017.