Milliman, Inc. today released the results of its latest Pension Funding Index, which consists of 100 of the nation's largest defined benefit pension plans. In September, these pensions experienced a $45 billion increase in funded status based on a $30 billion reduction in the pension benefit obligation (PBO) and a $15 billion asset improvement. The $45 billion increase in funded status means these pensions have reduced their cumulative funding deficit by $80 billion in the last two months, following a four-month slide of $304 billion.
"It may be too late in the year to call it a comeback—the funding deficit for these 100 pensions has grown by more than $100 billion in 2012," said John Ehrhardt, co-author of the Milliman Pension Funding Study. "But two months in a row of funded status improvement is still welcome news. Not surprisingly, the recent deficit reduction was driven in large part by cooperative interest rate movement."
In September, the discount rate used to calculate pension liabilities increased from 3.99% to 4.08%, reducing the PBO to $1.778 trillion at the end of the month. The overall asset value for these 100 pensions increased from $1.309 trillion to $1.324 trillion.
Looking forward, if these 100 pensions were to achieve their expected 7.8% median asset return and if the current discount rate of 4.08% were to be maintained throughout 2012 and 2013, these pensions would improve the pension funded ratio from 74.5% to 75.4% by the end of 2012 and to 79.9% by the end of 2013.
To view the complete study, go to http://ow.ly/4xFIt.
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