Pension Funding Index November 2015

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By John W. Ehrhardt, Zorast Wadia | 09 November 2015

In October, the funded status of the 100 largest corporate defined benefit pension plans improved by $25 billion as measured by the Milliman 100 Pension Funding Index (PFI). The deficit fell to $287 billion from $312 billion at the end of September. As of October 31, the funded ratio climbed to 83.3% from 81.7% at the end of September.

The market value of assets rose by $33 billion as a result of October’s robust investment gain of 2.75%, which was the highest monthly return recorded in 2015. The Milliman 100 PFI asset value increased to $1.429 trillion from $1.396 trillion at the end of September.

The projected benefit obligation (PBO), or pension liabilities, increased by $8 billion during October, raising the Milliman 100 PFI value to $1.716 trillion from $1.708 trillion at the end of September. The PBO change resulted from a decrease of three basis points in the monthly discount rate to 4.16% for October, from 4.19% for September.

Over the last 12 months (November 2014 – October 2015), the cumulative asset return for these pensions has been 3.39% and the Milliman 100 PFI funded status deficit has improved by $7 billion. The rise in funded status over the past 12 months is primarily due to the 16 basis points uptick in discount rates since last October.

If the Milliman 100 PFI companies were to achieve the expected 7.3% (as per the 2015 pension funding study) median asset return for their pension plan portfolios and the current discount rate of 4.16% was maintained during years 2015 and 2016, we forecast the funded status of the surveyed plans would increase. This would result in a projected pension deficit of $282 billion (funded ratio of 83.6%) by the end of 2015 and a projected pension deficit of $246 billion (funded ratio of 85.7%) by the end of 2016.

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