Milliman today released the results of its latest Pension Funding Index, which analyzes the 100 largest U.S. corporate pension plans. In August, these pension plans experienced a $22 billion decrease in funded status based on a $42 billion decrease in asset values and a $20 billion decrease in pension liabilities. The funded status for these pensions decreased from 84.9% to 83.4%.
Most of the time, interest rate movements drive pension funded status, but the stock market volatility we saw in August stole the show. For the year, these pensions had performed well on the asset side, but August erased all those gains.
Looking forward, under an optimistic forecast with rising interest rates (reaching 4.43% by the end of 2015 and 5.03% by the end of 2016) and asset gains (11.3% annual returns), the funded ratio would climb to 87% by the end of 2015 and 100% by the end of 2016. Under a pessimistic forecast (4.03% discount rate at the end of 2015 and 3.43% by the end of 2016 and 3.3% annual returns), the funded ratio would decline to 81% by the end of 2015 and 74% by the end of 2016.