The funded status of the 100 largest U.S. corporate defined benefit plans fell by $22 billion in August, despite market gains that brought in $24 billion, according to the latest Milliman report.
The actuarial and consulting firm's Pension Funding Index echoes glum news last week from BNY Mellon's Investment Strategy and Solutions Group. The monthly BNY Mellon Institutional Scorecard indicated that typical corporate plans saw a drop of 0.7 percentage points in their funded status — their ability to fund their obligations — to 90.1 percent.
Similarly, according to Milliman, discount rates that fell to an all-time low of below 4 percent took their toll last month. While investment gains of 1.92 percent in August caused total corporate DB plan assets to increase by $24 billion, liabilities also increased — by $46 billion, leaving plans in the hole by $22 billion.
Recommended For You
At the end of July, their deficit stood at $259 billion on a funded status of 84.8 percent. But the increase in the projected benefit obligation as a result of a 21-basis-point drop in the monthly discount rate took the effective rate at the end of July from 4.10 percent down to 3.89 percent. That's the lowest recorded in the 14-year history of the Milliman 100 PFI.
The falling discount rate took both asset levels and funded status numbers down with them, increasing the deficit to $281 billion and dropping the funded status to 84 percent.
The 2014 Milliman Pension Funding Study indicated that the 100 companies in the index expect returns on their investments of 7.4 percent.
Milliman forecasts that, should that be the case and the current 3.89 percent discount rate remain steady over the remainder of the year and 2015, the funded status of the surveyed plans would increase.
According to Milliman, "This would result in a projected pension deficit of $265 billion (funded ratio of 84.9 percent) by the end of 2014 and a projected pension deficit of $228 billion (funded ratio of 87.1 percent) by the end of 2015."
However, under what it calls a "pessimistic forecast," should interest rates continue to fall, with a 3.69 percent discount rate at the end of 2014 and 3.09 percent by the end of 2015 and 3.4 percent annual returns, the funded ratio would decline to 82 percent by the end of 2014 and 75 percent by the end of 2015.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
