In October, the funded status of the 100 largest corporate defined benefit pension plans improved by $28 billion as measured by the Milliman 100 Pension Funding Index (PFI). The deficit fell to $410 billion due to interest rate gains during October. As of October 31, the funded ratio increased to 77.3%, up from 76.3% at the end of September.
The market value of assets declined by $17 billion as a result of October’s investment loss of 0.84%. The Milliman 100 PFI asset value decreased to $1.393 trillion at the end of October.
The projected benefit obligation (PBO), or pension liabilities, decreased to $1.803 trillion at the end of October from $1.848 trillion at the end of September. The change resulted from an increase of 19 basis points in the monthly discount rate to 3.61% for October, from 3.42% for September.
Over the last 12 months (November 2015-October 2016), the cumulative asset return for these pensions has been 4.44%. The Milliman 100 PFI funded status has deteriorated by $116 billion. The rise in the funded status deficit over the past 12 months is due to a combination of decreases in discount rates, on the order of 55 basis points and lower-than-expected investment returns.
If the Milliman 100 PFI companies were to achieve the expected 7.2% median asset return (as per the 2016 pension funding study), and if the current discount rate of 3.61% 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 $405 billion by the end of 2016 and a projected pension deficit of $372 billion by the end of 2017.