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Corporate pension funded status declines for first time this year

By John Ehrhardt

Milliman today released the results of its latest Pension Funding Index, which consists of 100 of the nation’s largest defined benefit (DB) pension plans. In April, these pensions experienced a $39 billion decrease in pension funded status  based on a $35 billion increase in the pension benefit obligation (PBO) and a $4 billion decline in the asset value. April’s drop in funded status is the first of 2012 and comes following a strong improvement in March.  

These pensions were doing well in 2012 until April reversed the momentum. As has been the case with so many of our negative months, the decline in funded status was mostly interest-rate-driven.

In April, the discount rate used to calculate pension liabilities fell from 4.88% to 4.76%, pushing the PBO up to $1.561 trillion at the end of the month. The overall asset value for these 100 pensions decreased from $1.298 trillion to $1.294 trillion.

Looking forward, if these 100 pensions were to achieve their expected 7.8% median asset return and if the current discount rate of 4.76% were to be maintained throughout 2012 and 2013, these pensions would improve the pension funding ratio from 82.9% to 85.6% by the end of 2012 and to 90.7% by the end of 2013.

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