Pension Funding Index February 2016

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By John W. Ehrhardt, Zorast Wadia | 08 February 2016

In January, the funded status of the 100 largest corporate defined benefit pension plans dropped by $31 billion as measured by the Milliman 100 Pension Funding Index (PFI). The funded status deficit widened to $326 billion from $295 billion at the end of December due to large investment losses incurred during January. As of January 31, the funded ratio dropped to 80.9%, down from 82.7% at the end of December.

The market value of assets plummeted by $25 billion as the result of January’s investment loss of 1.46%. The Milliman 100 PFI asset value decreased to $1.384 trillion from $1.409 trillion at the end of December.

The projected benefit obligation (PBO) increased to $1.710 trillion at the end of January. The change resulted from a meager decrease of three basis points in the monthly discount rate to 4.19% for January from 4.22% for December.

Over the last 12 months (February 2015- January 2016), the cumulative asset return for these pensions has been -1.55%, but the Milliman 100 PFI funded status deficit has improved by $99 billion. The reasons for the gain in funded status—in spite of asset returns below expectation—were the increasing interest rates experienced during most of 2015. The funded ratio of the Milliman 100 companies has increased over the past 12 months to 80.9% from 77.5%.

If the Milliman PFI companies were to achieve the expected 7.3% median asset return for their pension plan portfolios and the current discount rate of 4.19% 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 $297 billion by the end of 2016 and a projected pension deficit of $261 billion by the end of 2017.