In September, the funded status of the 100 largest corporate defined benefit pension plans improved by $19 billion as measured by the Milliman 100 Pension Funding Index (PFI). The deficit fell to $437 billion due to interest gains during September. As of September 30, the funded ratio increased to 76.3%, up from 75.6% at the end of August.
The market value of assets fell by $4 billion as a result of September’s flat investment return of 0.07%. The Milliman 100 PFI asset value decreased to $1.410 trillion at the end of September.
The projected benefit obligation (PBO), or pension liabilities, decreased to $1.848 trillion at the end of September from $1.871 trillion at the end of August. The change resulted from an increase of 10 basis points in the monthly discount rate to 3.42% for September, from 3.34% for August.
During the quarter ended September 30, 2016, the funded status deficit improved by $11 billion. This was primarily due to the September funded status gain. The funded status worsened in July and August due to discount rate declines, but September reversed the trend resulting in the third quarter net improvement. Overall, discount rates fell by three basis points for the Milliman 100 PFI during the third quarter. The funded ratio of the Milliman 100 companies rose to 76.3% at the end of September from 75.6% at the end of June.
Over the last 12 months (October 2015-September 2016), the cumulative asset return for these pensions has been 8.47%. However, the Milliman 100 PFI funded status has deteriorated by $117 billion.
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 3.42% 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 $429 billion by the end of 2016 and a projected pension deficit of $394 billion by the end of 2017.