Pension Funding Index June 2015

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

In May, the funded status of the 100 largest corporate defined pension plans increased by $31 billion as measured by the Milliman 100 Pension Funding Index (PFI). The funded status deficit fell to $280 billion at the end of May, primarily due to an increase in the benchmark corporate bond interest rates used to value pension liabilities. As of May 31, the funded ratio rose to 84.1%, up from 82.6% at the end of April.

The projected benefit obligation (PBO), or pension liabilities, decreased by $34 billion during May, lowering the Milliman 100 PFI value to $1.756 trillion. The change resulted from an increase of 15 basis points in the monthly discount rate to 3.97% for May. Discount rates of under 4.00% have now persisted for seven consecutive months.

Over the last 12 months (June 2014 to May 2015), the cumulative asset return for these pensions has been 7.91% and the Milliman 100 PFI funded status deficit has improved by $2 billion. The discount rate as of a year ago on May 31, 2014, was 4.06%, nine basis points higher than where it stands as of May 31, 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 3.97% were maintained in 2015 and 2016, we forecast that the funded status of the surveyed plans would increase. This would result in a projected pension deficit of $258 billion by the end of 2015 and a projected pension deficit of $218 billion by the end of 2016.