In November, the funded status of the 100 largest corporate defined benefit pension plans improved by $71 billion as measured by the Milliman 100 Pension Funding Index (PFI). November’s funded status boost was the largest of 2016. The deficit fell to $340 billion. As of November 30, the funded ratio increased to 80.3% from 77.2% at the end of October.
The market value of assets fell by $11 billion as a result of November’s investment loss of 0.38%. The Milliman 100 PFI asset value decreased to $1.381 trillion at the end of November from $1.392 trillion at the end of October.
The projected benefit obligation (PBO), or pension liabilities, decreased to $1.721 trillion at the end of November from $1.803 trillion at the end of October. The change resulted from an increase of 37 basis points in the monthly discount rate to 3.98% for November from 3.61% for October.
Over the last 12 months (December 2015-November 2016), the cumulative asset return for these pensions has been 3.86% and the Milliman 100 PFI funded status deficit has worsened by $42 billion. The rise in the funded status deficit over the past 12 months is due to a combination of decreases in discount rates and lower-than-expected investment returns.
If the Milliman 100 PFI companies were to achieve the expected 7.2% median asset return (as per the 2016 pension funding study), and if the current discount rate of 3.9% were maintained during years 2016 through 2018, we forecast the funded status of the surveyed plans would increase. This would result in a projected pension deficit of $306 billion by the end of 2017 and a projected pension deficit of $271 billion by the end of 2018.