Milliman today released the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest corporate defined benefit pension plans. In April, these pension plans experienced a $37 billion decrease in funded status based on a $60 billion increase in the pension benefit obligation (PBO) and a $23 billion increase in assets.

We knew that the funded status improvement that has characterized these 100 pension plans so far in 2013 couldn’t last forever. We saw a $106 billion improvement during the first quarter of 2013, thanks to strong investment performance and cooperative interest rates. The strong investment performance continued through April, but interest rates were less cooperative, dropping below 4% for the first time this year and driving a $60 billion increase in the pension benefit obligation.

In April, the discount rate used to calculate pension liabilities decreased from 4.22% to 3.98%, increasing the PBO from $1.651 trillion to $1.711 trillion at the end of the month. The overall asset value for these 100 pension plans increased from $1.367 trillion to $1.390 trillion.

Looking forward, if these 100 pension plans were to achieve their expected 7.5% median asset return and if the current discount rate of 3.98% were to be maintained throughout 2013 and 2014, their pension funded ratio would improve from 81.2% to 84.2% by the end of 2013 and to 89.3% by the end of 2014.

Milliman also hosted a live broadcast on Google+, with Zorast Wadia discussing the latest Pension Funding Index.

Milliman today released the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest corporate defined benefit pension plans. In March, these pensions experienced a $29 billion increase in funded status based on a $14 billion decrease in the pension benefit obligation (PBO) and a $15 billion increase in assets. The March improvement of $29 billion results in a cumulative improvement of $106 billion in the first quarter of 2013. Note that this latest PFI reflects the data from the annual update of the Milliman 100 companies’ 2012 financial figures included in Milliman’s 2013 Pension Funding Study, published on March 25.

We’ve followed a record deficit at the end of 2012 with a record first quarter to open 2013. The funded ratio has gone from 77% at the end of last year to just under 83% at the end of the first quarter, which is about as strong of a rally as we could hope for in this persistent low-interest-rate environment.

In March, the discount rate used to calculate pension liabilities increased from 4.16% to 4.22%, decreasing the PBO from $1.665 trillion to $1.651 trillion at the end of the month. The overall asset value for these 100 pensions increased from $1.351 trillion to $1.366 trillion.

Looking forward, if these 100 pension plans were to achieve their expected 7.5% median asset return and if the current discount rate of 4.22% were to be maintained throughout 2013 and 2014, their pension funded ratio would improve from 82.7% to 86.1% by the end of 2013 and to 91.3% by the end of 2014.

Milliman today released the results of its latest Pension Funding Index, which consists of 100 of the nation’s largest corporate defined benefit pension plans. In February, these pensions experienced a $6 billion decrease in funded status based on a $17 billion increase in the pension benefit obligation (PBO) and an $11 billion increase in assets. February’s growth in the funded status deficit follows a near-record improvement of $107 billion in January and still leaves these pensions in better shape than at the end of 2012.

Assets continued to climb in February, but as usual it was interest rates that ultimately drove pension funded status. Thanks to cooperative interest rates in January, we are still ahead for the year. Even with the Dow hitting new record highs, it will ultimately be interest rates that dictate the pension funding story in 2013.

In February, the discount rate used to calculate pension liabilities decreased from 4.45% to 4.40%, increasing the PBO from $1.666 trillion to $1.683 trillion at the end of the month. The overall asset value for these 100 pensions increased from $1.361 trillion to $1.372 trillion.

Looking forward, if these 100 pension plans were to achieve their expected 7.8% median asset return and if the current discount rate of 4.40% were to be maintained throughout 2013 and 2014, their pension funded ratio would improve from 81.5% to 85.6% by the end of 2013 and to 90.6% by the end of 2014.

These figures are tentative and will be revisited as part of the 2013 Milliman Pension Funding Study, to be released later this month. Milliman expects that de-risking activities made by some of these companies will probably lower asset and liability figures, which may slightly negatively affect the plans’ overall funded status.

Milliman today released the results of its latest Pension Funding Index, which consists of 100 of the nation’s largest corporate defined benefit pension plans. In January, these pensions experienced a $106 billion improvement in funded status based on an $83 billion decrease in the pension benefit obligation (PBO) and a $23 billion increase in assets. The $106 billion advancement in January completely reverses a $74 billion deficit increase over the course of 2012 and sets off these 100 plans on a strong start in 2013.

In January we saw one of the more cooperative interest rate environments in recent memory. Over the course of 2012, plunging interest rates drove a ballooning pension funded status deficit. Now these rates have helped deflate that deficit. It’s early, but $106 billion in improvement is welcome news.

In January, the discount rate used to calculate pension liabilities increased from 4.18% to 4.45%, decreasing the PBO from $1.748 trillion to $1.665 trillion at the end of the month. The overall asset value for these 100 pensions increased from $1.337 trillion to $1.360 trillion.

Looking forward, if these 100 pension plans were to achieve their expected 7.8% median asset return and if the current discount rate of 4.45% were to be maintained throughout 2013 and 2014, their pension funded ratio would improve from 81.7% to 86.1% by the end of 2013 and to 91.1% by the end of 2014.

These figures are tentative and will be revisited as part of the 2013 Milliman Pension Funding Study, to be completed in March. Milliman expects that de-risking activities made by some of these companies will probably lower asset and liability figures, which may slightly negatively affect the plans’ overall funded status.

News that AT&T recorded a $10 billion fourth-quarter charge for its pension plan emphasizes the trouble many companies are having funding pensions. In this FOX Business article, John Ehrhardt discusses how historically low interest rates have hindered the funding status of the nation’s largest 100 corporate defined benefit plans. The result was the largest year-end funding deficit in the 12 years Milliman has analyzed these pension plans.

Here is an excerpt from the article:

Historically low rates have deepened the pension funding deficit in record amounts for these plans in 2012, Milliman says, with the top 100 US-based plans on average funded just 76.4% as of the end of last year – [down from 78.7% at the beginning of 2012].

Telecom giant AT&T has already warned in an SEC filing it would book a $10 billion charge for the fourth quarter due to its pension- and retirement-benefit plans, and Verizon (VZ) has warned it may book charges in the last quarter of 2012 as well due to its pensions.

A year of ballooning pension shortfalls has the 100 plans’ deficit now at $411.8 billion, $74 billion higher than it was as of year-end 2011.

That’s the largest annual funding deficit in the dozen years Milliman has conducted this analysis.

And that shortfall comes even though the plans had a decent year of returns on assets largely due to improving equities, posting a $90 billion gain, or a return of 9.3%, Milliman says.

The shortfall came from the liability side of the balance sheet, as low interest rates created a $164.8 billion increase in the plans’ pension benefit obligations, Milliman’s John Ehrhardt, co-author of the study, says.

“People may be getting tired of hearing me saying it but interest rates have been the story for the last four years and that’s not going to change in 2013,” Ehrhardt said in a statement.

Even though these 100 corporate pension plans have beaten their expected returns on assets for three of the last four years, Milliman’s John adds, the liability losses from plunging interest rates more than offset the investment gains. The companies book the deficit as a charge against shareholder equity on their balance sheets.

To read Milliman’s latest Pension Funding Index, click here.

Milliman today released the results of its latest Pension Funding Index, which consists of 100 of the nation’s largest corporate defined benefit pension plans. In December, these pensions experienced a $54 billion increase in funded status based on a $46 billion decrease in the pension benefit obligation (PBO) and a $8 billion increase in assets. The $54 billion improvement in December follows a $34 billion improvement in November, but it would still take many more months of improvement to make up for a year of ballooning pension deficit. At year end, the deficit of $412 billion is $74 billion higher than it was when 2011 ended.

It was a good year on the asset side, with these pensions experiencing a $90 billion gain. But it was a rough year on the liability side, with interest rates driving a $164 billion increase in the pension benefit obligation. People may be getting tired of hearing me saying it but interest rates have been the story for the last four years and that’s not going to change in 2013. 

In December, the discount rate used to calculate pension liabilities increased from 4.05% to 4.18%, decreasing the PBO from $1.794 trillion to $1.748 trillion at the end of the month. The overall asset value for these 100 pensions increased from $1.328 trillion to $1.336 trillion.

Looking forward, if these 100 pensions were to achieve their expected 7.8% median asset return and if the current discount rate of 4.18% were to be maintained throughout 2013 and 2014, these pensions would improve the pension funded ratio from 76.4% to 81.0% by the end of 2013 and to 85.7% by the end of 2014.

These year-end figures are only tentative, and will be revisited when the 2013 Milliman Pension Funding Study is completed in March. De-risking activities made by some of these companies will probably lower asset and liability figures, which we expect to have a slightly negative impact on the overall funded status of these plans.

Milliman today released the results of its latest Pension Funding Index, which consists of 100 of the nation’s largest corporate defined benefit pension plans. In November, these pensions experienced a $33 billion increase in funded status based on a $28 billion decrease in the pension benefit obligation (PBO) and a $5 billion increase in assets. The $33 billion increase begins to chip away at near-record funded status deficits that have persisted throughout the last two quarters. The deficit at the end of November sat at $466 billion.

The interest rates that determine pension funding liabilities climbed back above 4% in November, a welcome development for plan sponsors. If you need an illustration of how substantially interest rates are moving funded status, consider that through November these pensions have exceeded their expected annual return. If they hold onto these gains through December it will be the third such year out of the last four. And yet we’re still dealing with near-record deficits. It’s all about rates, and calendar-year-end funded status will depend largely on where the discount rate ends up as of December 31. 

In November, the discount rate used to calculate pension liabilities increased from 3.96% to 4.05%, decreasing the PBO to $1.793 trillion at the end of the month. The overall asset value for these 100 pensions increased from $1.322 trillion to $1.327 trillion.

Looking forward, if these 100 pensions were to achieve their expected 7.8% median asset return and if the current discount rate of 4.05% were to be maintained throughout 2013 and 2014, these pensions would improve the pension funded ratio from 74.0% to 78.7% by the end of 2013 and to 83.3% by the end of 2014.

Without Congressional action by December 31, a series of tax cuts will expire, and automatic spending cuts will kick in. After a contentious election, the big question now is: Will the debt discussion be different this time? Will there be more political brinkmanship or has the tone shifted enough to allow for bipartisan cooperation? More importantly for our readers here: What will the outcome of the fiscal cliff negotiations mean for retirement plans if the fiscal cliff isn’t addressed before December 31?

The first day after the election, the Dow lost over 300 points, its largest one day loss in over a year. During the deliberations to raise the debt ceiling, the stock market was extremely volatile. With this backdrop, more stock market volatility is entirely possible. If we experience a drop in the stock market between now and December 31, the asset values for all retirement plans will be down. This will affect savings plans, IRAs, and pension plans.

Milliman’s November 2012 Pension Funding Index showed a pension funding deficit of $498 billion. If the fiscal cliff is not addressed in a timely manner, this deficit could get worse. In order to illustrate the possible implications for pension plans, we used the latest Milliman Pension Funding Index and assumed an equity decline of 20% in December. If such a scenario plays out it will lead to a record low in pension funded status.

Unless interest rates rise, corporate pension plan sponsors who measure their liabilities based on the current level of interest rates will continue to use historically low interest rates. This means their plan liabilities will remain at high levels, a hit to the corporate balance sheet, which is due to the pension plan’s funded status and an increase in contributions for the 2013 plan year.

For public pension plan sponsors, this will likely mean higher contribution rates for the 2013 plan year. For those pension plan sponsors who do not measure their assets and liabilities on December 31, it’s a matter of wait and see what happens until they check in next.

Interesting times indeed.

Milliman today released the results of its latest Pension Funding Index, which consists of 100 of the nation’s largest defined benefit pension plans. In October, these pensions experienced a $45 billion decrease in funded status based on a $43 billion increase in the pension benefit obligation (PBO) and a $2 billion decrease in assets. The $45 billion decrease wipes out September’s improvement in funded status and contributes to a larger trend: During five of the last seven months, these 100 pensions have seen an interest-rate-driven increase in the funded status deficit, increasing the funded status gap by a cumulative $270 billion.

Four months ago a pension funding deficit of nearly $500 billion would have been a record. I don’t want people to get too comfortable with such a funded status gap, but if historically low interest rates persist, it will be hard to put distance from a funding deficit of half a trillion dollars. 

In October, the discount rate used to calculate pension liabilities decreased from 4.08% to 3.96%, increasing the PBO to $1.821 trillion at the end of the month. The overall asset value for these 100 pensions decreased from $1.324 trillion to $1.322 trillion.

Looking forward, if these 100 pensions were to achieve their expected 7.8% median asset return and if the current discount rate of 3.96% were to be maintained throughout 2012 and 2013, these pensions would improve the pension funded ratio from 72.6% to 73.2% by the end of 2012 and to 77.6% by the end of 2013.

The latest Pension Funding Index shows the funded status of the 100 largest corporate defined benefit (DB) plans increased by $45 billion in September. John Ehrhardt discussed the improvement in funded status with Pensions & Investments (subscription required) yesterday.

Here is an excerpt:

Plans received some liability relief in the last two months following the worst four-month stretch, April-July, in the 12-year history of Milliman’s report that saw liabilities increase by $304 billion, said John Ehrhardt, principal and consulting actuary at Milliman and co-author of the study. The discount rate increased nine basis points to 4.08% in September, resulting in a $30 billion reduction in the 100 plans’ pension benefit obligation.

“I was surprised a little to see interest rates jump a little bit in the last two months,” Mr. Ehrhardt said in a telephone interview. “You can’t expect much change in the discount rate.”

Plans have ramped up their interest in equity hedging strategies in recent months as fixed-income returns struggle in a low-interest-rate environment. Mr. Ehrhardt added protecting against interest-rate downside at this time is “like closing the barn doors after the cows leave.” The cumulative asset return over the last 12 months has been 15%, but the funded status has actually dropped to 74.5% from 77.4%.

To download the new PFI, click here.