The funded status of the 100 largest corporate defined benefit pension plans improved by $80 billion as measured by the Milliman 100 Pension Funding Index (PFI). The deficit fell to $303 billion from $383 billion at the end of January. As of February 28, the funded ratio increased to 83.3%, up from 79.6% at the end of January.
The projected benefit obligation (PBO), or pension liabilities, decreased to $1.816 trillion from $1.876 trillion at the end of January. The change resulted from an increase of 25 basis points in the monthly discount rate to 3.63% for February from 3.38% for January. January’s discount rate was the lowest ever in the history of the PFI, and February’s discount rate was the second lowest. The market value of assets increased by $20 billion as a result of February’s investment gain of 1.70%. The Milliman 100 PFI asset value rose to $1.513 trillion.
Over the last 12 months (March 2014 to February 2015), the cumulative asset return for these pensions has been 10.37%, but the Milliman 100 PFI funded status has deteriorated by $64 billion. This drop is due to declining interest rates during most of 2014. The funded ratio of the Milliman 100 companies has decreased over the past 12 months to 83.3% from 85.6%.
If the Milliman 100 PFI companies were to achieve the expected 7.4% (as per the 2014 Milliman Pension Funding Study) median asset return for their pension plan portfolios and the current discount rate of 3.63% were maintained this year and next year, we forecast the funded status of the surveyed plans would increase. This would result in a projected pension deficit of $270 billion by the end of 2015 and a projected pension deficit of $230 billion by the end of 2016.