Milliman today released the results of its latest Pension Funding Index, which consists of 100 of the nation's largest defined benefit pension plans. In October, these pensions experienced a $45 billion decrease in funded status based on a $43 billion increase in the pension benefit obligation (PBO) and a $2 billion decrease in assets. The $45 billion decrease wipes out September's improvement in funded status and contributes to a larger trend: During five of the last seven months, these 100 pensions have seen an interest-rate-driven increase in the funded status deficit, increasing the funded status gap by a cumulative $270 billion.



Four months ago a pension funding deficit of nearly $500 billion would have been a record. I don t want people to get too comfortable with such a funded status gap, but if historically low interest rates persist, it will be hard to put distance from a funding deficit of half a trillion dollars.

In October, the discount rate used to calculate pension liabilities decreased from 4.08% to 3.96%, increasing the PBO to $1.821 trillion at the end of the month. The overall asset value for these 100 pensions decreased from $1.324 trillion to $1.322 trillion.

Looking forward, if these 100 pensions were to achieve their expected 7.8% median asset return and if the current discount rate of 3.96% were to be maintained throughout 2012 and 2013, these pensions would improve the pension funded ratio from 72.6% to 73.2% by the end of 2012 and to 77.6% by the end of 2013.