In April, the funded status of the 100 largest corporate defined benefit pension plans worsened by $25 billion as measured by the Milliman 100 Pension Funding Index (PFI). The deficit rose to $411 billion primarily due to a decrease in the benchmark corporate bond interest rates used to value pension liabilities. As of April 30, the funded ratio declined to 77.1% from 78.1% at the end of March. Discount rates have fallen in every month of 2016 so far and funding ratios have followed suit.
The projected benefit obligation (PBO) increased by $29 billion during April, raising the Milliman 100 PFI value to $1.792 trillion from $1.763 trillion at the end of March.
The market value of assets increased by $4 billion as a result of April’s investment gain of 0.69%. The Milliman 100 PFI asset value increased to $1.381 trillion from $1.377 trillion at the end of March.
Over the last 12 months (May 2016 – April 2016), the cumulative asset return for these pensions has been 0.1% and the Milliman 100 PFI funded status deficit has ballooned by $96 billion. The funded ratio of the Milliman 100 companies has dropped over the past 12 months to 77.1% from 82.3%.
If the Milliman 100 PFI companies were to achieve the expected 7.2% median asset return and if the current discount rate of 3.65% 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 $392 billion by the end of 2016 and a projected pension deficit of $358 billion by the end of 2017.