Milliman Inc.'s latest look at the state of corporate pensions offers a more-than-familiar note: Record low discount rates in 2014 dragged down the funding status of pensions even though investments saw double-digit gains.
The consulting and actuarial firm, in a just-out report, said that in spite of gaining 10.9 percent from investments, the nation's 100 largest plans experienced a higher increase in liabilities than in assets, resulting in a drop in funded status of 6.1 percent to 81.7 percent.
In January, a Towers Watson analysis found, looking at an even broader sampling of 411 Fortune 1000 companies, the funded status for those plans had dropped by 9 percent, wiping out all of 2013's gains and leaving them funded at an aggregate of just 80 percent.
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Towers Watson had put the gain from investments at about 9 percent, but also found that companies contributed to their plans at the lowest level since 2008.
The Milliman study said that contributions were down $4.4 billion from where they were in 2013, probably thanks to last year's federal highway bill, which allowed pension sponsors to "smooth" contributions and delay making mandatory contributions.
If that trend continues in 2015, as was recently projected in a Russell Investments report, funding status is likely to continue to fall.
As have others, Milliman pointed out in its report that another factor accounting for the increase in liabilities last year is due to new mortality assumptions.
"The new … mortality assumptions appeared to increase pension liabilities by approximately $38.3 billion, or 3.4%, at least among those plans that disclosed the impact," it said in its report.
Its study also found that liability-driven investments — fixed income — performed most strongly, and that asset allocations shifted toward fixed income. Equity allocations, it found, fell to their lowest level in the study's 15 years, making up only 37.3 percent of investments by the end of 2014.
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