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Corporate pensions see $186 billion deficit increase during second quarter of 2012

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 June, these pensions experienced a $57 billion decrease in  funded status based on a $77 billion increase in the pension benefit obligation (PBO) and a $20 billion increase in asset value. The $57 billion decrease in funded status pairs with the combined April and May decreases of $129 billion, increasing the funding deficit by $186 billion during the second quarter.

With the help of the lowest discount rate in the 12-year history of our study, corporate pensions last month saw their funding deficit increase to a near-record $415 billion. This is the second-worst deficit we’ve seen. 

In June, the discount rate used to calculate pension liabilities fell from 4.56% to 4.32%, pushing the PBO up to $1.698 trillion at the end of the month. The overall asset value for these 100 pensions increased from $1.263 trillion to $1.283 trillion.

Looking forward, if these 100 pensions were to achieve their expected 7.8% median asset return and if the current discount rate of 4.32% were to be maintained throughout 2012 and 2013, these pensions would improve the pension funded ratio from 75.6% to 77.4% by the end of 2012 and to 82.0% by the end of 2013.

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