Pension Funding Index June 2016

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By John W. Ehrhardt, Zorast Wadia | 10 June 2016

The funded status of the 100 largest corporate defined benefit pension plans improved in May by $10 billion as measured by the Milliman 100 Pension Funding Index (PFI). The deficit fell to $401 billion due to an increase in the benchmark corporate bond interest rates used to value pension liabilities and investment gains. As of May 31, the funded ratio increased to 77.5%, up from 77% at the end of April.

The projected benefit obligation (PBO), or pension liabilities, decreased to $1.785 trillion at the end of May. The change resulted from an increase of three basis points in the monthly discount rate to 3.68% for May, from 3.65% for April.

The market value of assets increased by $4 billion as a result of May’s investment gain of 0.65%. The Milliman 100 PFI asset value increased to $1.384 trillion at the end of May.

Over the last 12 months (June 2015 – May 2016), the cumulative asset return for these pensions has been 0.5% and the Milliman 100 PFI funded status deficit has deteriorated by $116 billion. The funded ratio of the Milliman 100 companies has decreased over the past 12 months to 77.5% from 83.7%.

If the Milliman 100 PFI companies were to achieve the expected 7.2% median asset return and if the current discount rate of 3.68% 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 $384 billion by the end of 2016 and a projected pension deficit of $351 billion by the end of 2017.