What a difference a year makes: June 30, 2012, versus June 30, 2011

With the struggling economy and the effects of a low interest rate environment on corporate pension plan’s balance sheets, plans with June 30 fiscal year ends could see a much different picture than a year ago. Many governmental plans and not-for-profits have a June 30 fiscal year end.

Making matters even more difficult for pension plans, Citigroup announced on June 26, 2012, that the downgrade by Moody’s in June 2012 of five financial institutions—JPMorgan Chase, Credit Suisse, Barclays, UBS, and Deutsche Bank—will affect the number of bonds in the universe when Citigroup releases the June 30 Citigroup Pension Liability Index. Citigroup indicated that if the five financial institutions were not included in the May 2012 index that the median discount rate would have dropped 20 basis points, from 4.34% to 4.14%.

Each month Milliman publishes its Pension Funding Index (PFI), which serves as a monthly update to its annual Pension Funding Study. As stated in the June 2012 PFI, the funded status deficit of the 100 largest corporate defined benefit plans was $357 billion. Reflecting a 20-basis-point decrease in discount rates, the funded status would drop from 78.0% to 75.1%, a change amounting to a massive $61 billion decrease in funded status.

This is certainly not good news for sponsors of defined benefit (DB) pension plans with a June 30 fiscal year end. Milliman is here to assist you with this matter. Please contact your Milliman consultant for more information.

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