Archive

Posts Tagged ‘interest rates’

Milliman Hangout: Pension Funding Index, January 2015

January 13th, 2015 No comments

The funded status for the 100 largest corporate defined benefit plans decreased by $22 billion during December 2014, according to the Milliman 100 Pension Funding Index (PFI). Historically low interest rates were the dominant factor in the $105 billion deficit increase during 2014. While higher than expected investment returns produced a solid $81 billion gain, pension liabilities increased by $186 billion. The funded ratio was 83.6% as of December 31, 2014, down compared with the ratio on December 31, 2013, of 88.3%.

For more perspective on the January’s PFI watch our latest Milliman Hangout featuring co-author Zorast Wadia.

Corporate pension funding deficit grows by more than $100 billion in 2014 because of plummeting interest rates

January 7th, 2015 No comments

Milliman today released the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest defined benefit pension plans. In December, these plans experienced a $19 billion increase in pension liabilities and a $3 billion decrease in asset value, resulting in a $22 billion increase in the pension funded status deficit and a funded ratio of 83.6%. For the year, despite market returns of $81 billion, these pensions experienced a $105 billion increase in the pension funded status deficit, fueled by a $186 billion increase in liabilities as interest rates fell to a historic low at year end.

1947MEB_Fig1_600x280

What a difference a year makes. Last year at this time we were celebrating a historic rally for these pensions, thanks to—surprise surprise—cooperative interest rates. This year it’s the opposite story, with interest rates falling to 3.80%, the lowest rate we’ve ever seen in the 14-year history of this study. With rates this low, the liability increase for these pensions outstripped strong asset performance by more than $100 billion.

Looking forward, if the Milliman 100 pension plans were to achieve the expected 7.4% median asset return for their pension portfolios, and if the current discount rate of 3.80% were maintained, funded status would improve, with the funded status deficit shrinking to $255 billion (85%.7 funded ratio) by the end of 2015 and to $217 billion (87.9% funded ratio) by the end of 2016. This forecast assumes 2014 aggregate contributions of $44 billion and 2015 and 2016 aggregate contributions of $31 billion.

Google Hangout: Pension Funding Index, December 2014

December 5th, 2014 No comments

The funded status of the 100 largest corporate defined benefit pension plans fell by $8 billion during November as measured by the Milliman 100 Pension Funding Index (PFI). The deficit widened from $263 billion to $271 billion, which was primarily due to another decrease in the benchmark corporate bond interest rates used to value pension liabilities. The funded ratio declined from 84.8% to 84.6% at the end of November.

PFI coauthor Zorast Wadia offers some perspective on the latest results in this Milliman Google+ Hangout.

Corporate pension funded status drops another $8 billion in November

December 4th, 2014 No comments

Milliman today released the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest defined benefit pension plans. In November, these plans experienced a $26 billion increase in pension liabilities and an $18 billion increase in asset value, resulting in an $8 billion increase in the pension funded status deficit.

1927MEB_Fig1

The story this year seems to be the same month after month, and in November it’s exactly the same as it was in October—an $8 billion increase in the funded status deficit, with liabilities exceeding positive asset performance. For the year, interest rates have dropped by 79 basis points, driving a $167 billion liability increase.

Looking forward, if the Milliman 100 pension plans were to achieve the expected 7.4% median asset return for their pension portfolios, and if the current discount rate of 3.89% were maintained, funded status would improve, with the funded status deficit shrinking to $230 billion (87% funded ratio) by the end of 2015 and to $191 billion (89.2% funded ratio) by the end of 2016. This forecast assumes 2014 aggregate contributions of $44 billion and 2015 and 2016 aggregate contributions of $31 billion.

Google+ Hangout: Pension Funding Index, November 2014

November 17th, 2014 No comments

The funded status of the 100 largest corporate defined benefit pension plans fell by $8 billion during October as measured by the Milliman 100 Pension Funding Index (PFI). The deficit widened from $255 billion to $263 billion at the end of October, which was primarily due to a decrease in the benchmark corporate bond interest rates used to value pension liabilities. As of October 31, the funded ratio declined from 85.1% to 84.8%.

PFI co-author Zorast Wadia discusses the index’s latest results on this Milliman Google+ Hangout.

Corporate pension funded status drops by $8 billion in October

November 10th, 2014 No comments

Milliman today released the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest defined benefit pension plans. In October, these plans experienced a $22 billion increase in pension liabilities and a $14 billion increase in asset value, resulting in an $8 billion increase in the pension funded status deficit.

1909MEB_Fig1_600-x-280_blog

These pensions have had a great year from an asset perspective, with $65 billion of improvement since the start of the year. But over the same time, interest rate decreases have ballooned the liabilities for these pensions by $141 billion. Low interest rates continue to drive this funding deficit.

Liabilities may be further influenced by the introduction of new mortality tables. The latest PFI has not been adjusted to estimate for the impact of possibly moving to the mortality tables recently finalized by the Society of Actuaries, but preliminary estimates indicate a possible increase in liabilities of between 6% to 8%.

Looking forward, if the Milliman 100 pension plans were to achieve the expected 7.4% median asset return for their pension portfolios, and if the current discount rate of 4.00% were maintained, funded status would improve, with the funded status deficit shrinking to $255 billion (85.3% funded ratio) by the end of 2014 and to $219 billion (87.4% funded ratio) by the end of 2015.

Google+ Hangout: Pension Funding Index, October 2014

October 10th, 2014 No comments

The funded status of the 100 largest corporate defined benefit pension plans improved by $26 billion during September as measured by the Milliman 100 Pension Funding Index (PFI).

The deficit dropped from $279 billion to $253 billion in September, which was primarily due to an increase in the benchmark corporate bond interest rates used to value pension liabilities. The funded status would have improved further were it not for September’s investment losses. As of September 30, the funded ratio grew from 84.1% to 85.2%.

Index co-author Zorast Wadia discusses the results on Milliman’s monthly PFI Google+ Hangout with Jeremy Engdahl-Johnson.

Corporate pension funded status improves by $26 billion in September

October 7th, 2014 No comments

Milliman today released the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest defined benefit pension plans. In September, these plans experienced a $45 billion decrease in pension liabilities and a $19 billion decrease in asset value, resulting in a $26 billion decrease in the pension funded status deficit.

PFI_September 2014_Fig1_600x280

We just had our best month of the year, but it wasn’t enough to make the third quarter a positive one for these pensions. After five straight quarters of improving funded status, we’ve had three straight losing quarters this year.

Looking forward, if the Milliman 100 pension plans were to achieve the expected 7.4% median asset return for their pension portfolios, and if the current discount rate of 4.10% were maintained, funded status would improve, with the funded status deficit shrinking to $241 billion (85.9% funded ratio) by the end of 2014 and to $206 billion (88.0% funded ratio) by the end of 2015.

Google+ Hangout: Pension Funding Index, September 2014

September 16th, 2014 No comments

The funded status of the 100 largest corporate defined benefit pension plans deteriorated by $22 billion during August as measured by the Milliman 100 Pension Funding Index (PFI). The deficit increased from $259 billion to $281 billion at the end of July, which was due to a drop in the benchmark corporate bond interest rates used to value pension liabilities. August’s robust investment gain was not enough to improve the Milliman 100 PFI’s funded status. As of August 31, the funded ratio dropped down from 84.8% to 84.0%.

PFI co-author Zorast Wadia discusses the index’s latest results on this Milliman Google+ Hangout.

Corporate pension funded status drops by $22 billion in August

September 8th, 2014 No comments

Milliman today released the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest defined benefit pension plans. In August, these plans experienced a $46 billion increase in pension liabilities and a $24 billion increase in asset value, resulting in a $22 billion increase in the pension funded status deficit.

1858MEB_Fig1_600x280

It was a strong month of asset improvement, but there’s no counteracting record-low interest rates. Year to date, rates have swollen pension liabilities by $165 billion.

Looking forward, if the Milliman 100 pension plans were to achieve the expected 7.4% median asset return for their pension portfolios, and if the current discount rate of 3.89% were maintained, funded status would improve, with the funded status deficit shrinking to $265 billion (84.9% funded ratio) by the end of 2014 and to $228 billion (87.1% funded ratio) by the end of 2015.