The funded status of the 100 largest corporate pension plans shot to its highest point since Milliman started tracking it 13 years ago.
An 87-basis-point surge in interest rates and an 11.2 percent investment gain in 2013 powered a historic year in corporate pension funded status improvement, gaining $318 billion for the year.
Liabilities decreased by $190 billion and assets increased by $128 billion. Milliman highlighted that 2013 was the first year since 2007 where liabilities decreased and assets increased in the same year. The funded ratio was 95.2 percent as of Dec. 31, 2013, an 18-percentage-point gain over the 77.2 percent funded ratio at the beginning of 2013.
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Milliman predicts that many plan sponsors will set their sights on getting their pensions fully funded in 2014.
The $318 billion funding improvement in 2013 resulted in a year-end funded deficit of $72.9 billion, the smallest deficit at year-end since 2007, when the deficit was $68 billion, Milliman found.
The improvement in funded status resulted in a credit to corporate balance sheets and is expected to decrease pension expenses for 2014 by $33.5 billion.
If the Milliman 100 Pension Funding Index achieved the expected 7.5 percent median asset return and the current discount rate of 4.83 percent was maintained during 2014 and 2015, Milliman predicts the funded status of the surveyed plans would increase and even create a pension surplus of $14 billion by the end of 2014. The surplus could grow to $106 billion and a funded ratio of 106.8 percent by the end of 2015 if the same factors remain in place.
If interest rates continue to rise, reaching 5.43 percent by the end of 2014 and 6.03 percent by the end of 2015 and pension plans achieved an 11.5 percent annual return, the funded ratio would climb to 113 percent by the end of this year and 134 percent by the end of 2015, Milliman forecasted.
Every year for 13 years, Milliman has conducted a study of the 100 largest defined benefit pension plans sponsored by U.S. public companies.
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