In September, the funded status of the 100 largest corporate defined benefit pension plans worsened by $28 billion as measured by the Milliman 100 Pension Funding Index (PFI). The deficit rose to $312 billion due to both investment losses and interest rate decreases during September. As of September 30, the funded ratio dropped to 81.7%, down from 83.3% at the end of August.
The market value of assets fell by $19 billion as a result of September’s investment loss of 0.97%. The Milliman 100 PFI asset value decreased to $1.396 trillion from $1.415 trillion at the end of August.
The projected benefit obligation (PBO), or pension liabilities, increased by $9 billion during September, raising the Milliman 100 PFI value to $1.708 trillion from $1.699 trillion at the end of August. The PBO change resulted from a decrease of four basis points in the monthly discount rate to 4.19% for September, from 4.23% for August.
During the quarter ended September 30, 2015, the funded status deficit increased by $66 billion. This was primarily due to the large investment losses in August and September. The asset losses in the third quarter were at 2.49%.
The $51 billion third quarter 2015 investment loss was the largest third quarter investment loss since 2011. The funded status drop of $66 billion was also the largest third quarter decline experienced since the $218 billion decline in the quarter ending in September 2011.
Over the last 12 months (October 2014 – September 2015), the cumulative asset return for these pensions has been 1.84% and the Milliman 100 PFI funded status deficit has worsened by $30 billion. The drop in funded status over the past 12 months is primarily due to the investment losses occurring during the third quarter of 2015. Prior to August 2015, the year-to-date asset return was 2.73%.
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 4.19% 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 $305 billion (funded ratio of 82.2%) by the end of 2015 and a projected pension deficit of $271 billion (funded ratio of 84.2%) by the end of 2016.