Milliman today released the results of its 2013 Pension Funding Study, which analyzes the 100 largest US corporate pension plans. In 2012, these pension plans were once again defined by record-low discount rates, which led to record-high pension obligations and a $388.8 billion pension funding deficit—a $61.1 billion deficit increase in 2012. Since the end of 2010, declining interest rates have widened the pension funding deficit by more than $150 billion, driving record deficits in each of the last two years. The pension funding ratio stood at 77.2% at year’s end, down from 79.2% at the end of 2011. The deficit increase and reduced funding ratio in 2012 happened in spite of efforts by certain plan sponsors to de-risk their pension plans.

Many plan sponsors made significant efforts to de-risk their pension plans in 2012, even as record-low interest rates made it an expensive time to pursue these kinds of risk management efforts. But there was no fighting the inevitable gravity of these low interest rates, as the 100 pension plans in our study saw a cumulative deficit increase in excess of $60 billion . All this in spite of strong asset performance that exceeded the expectations of most plan sponsors. People are probably getting tired of hearing me say this, but pension funding status will continue to be tied to interest rates. If rates stay low—and all indications are that they will through 2014—these pension plans will struggle to fill their funding gap.

Major pension stories for 2012 include:

De-risking results in shakeup at the top of the Milliman 100. Throughout the 13 years Milliman has performed this analysis, General Motors has been the largest pension plan, based on total assets. That changed in 2012 after GM pursued de-risking efforts. IBM—long a solid #2 in the study—is now the largest pension plan in the Milliman 100. Other large plan sponsors, including Ford and Verizon, also pursued de-risking. Across the entire Milliman 100, de-risking by at least 15 plan sponsors resulted in a cumulative $45 billion reduction in plan obligations.

Asset increases and $61.5 billion in contributions were not enough to close the deficit. With an 11.7% investment return in 2012, the Milliman 100 pension plans performed better than they expected—but it wasn’t enough to offset the ballooning deficit. Nor were contributions in excess of $60 billion.

Record contributions in 2012—but not at the level expected. While the $61.5 billion in contributions during 2012 was significantly greater than most prior years, it exceeded the 2011 total by only $6.3 billion and the 2010 total by only $1.8 billion. The lower-than-expected contributions were likely due to plan sponsors electing to change their contribution strategy following the passage of the MAP-21 interest rate stabilization legislation.

Another record year for pension expense. Following a $38.5 billion charge to earnings in 2011, the Milliman 100 pension plans again set a new record for total pension expense, with a $55.8 billion charge to earnings. The $17.3 billion increase in pension expense is consistent with the prediction of $16 billion reported by last year’s study. This year’s study predicts a $7.6 billion increase in pension expense in 2013.

Asset allocations relatively stable. In 2011, plan sponsors decreased the percentage of assets invested in equities by more than 5%. In 2012, the percentage of assets allocated to equities remained relatively stable (from 38.2% to 38.0%), as the move toward liability-driven investments (LDI) slowed. Because of the strong performance of equities in 2012, plans with higher equity allocations had better investment returns than those with higher allocations to fixed-income investments.

What to expect in 2013. With the Federal Reserve Board indicating its intention to keep interest rates low through 2014, pension obligations will remain high. The year is off to a strong start from an equity perspective, and de-risking may continue in 2013. But until interest rates move favorably, the pension funding deficit is likely to endure.

Milliman’s Corporate Pension Funding Study is an annual analysis of the 100 largest U.S. corporate defined benefit pension plans. Study co-author John Ehrhardt discusses new funded status results, General Motor’s de-risking measures, and 2013′s outlook in this preview.

The 2013 Milliman Pension Funding Study will be released on Monday, March 25. Contact us at pensionfunding@milliman.com to be added to our mailing list.

Milliman, Inc. today released the results of its 2012 Pension Funding Study, which analyzes the 100 largest U.S. corporate pensions. In 2011, these pensions were defined by record-low discount rates, which led to record-high pension liabilities and a $326.8 billion pension funding deficit—a $94.7 billion increase over year-end 2010 and a new record for the 12-year history of this study. The pension funding ratio stood at 79.2% at year’s end.

Interest rates drove the pension funding deficit to record levels, and the record deficit drove everything else. We saw record pension expense and, for the first time in the history of this study, these pensions invested more heavily in fixed income than in equities. But it’s what we didn’t see that is perhaps most intriguing: Despite our prediction of record pension contributions, we instead saw contributions decline, setting up 2012 as a major contribution year for some of these companies. We’re already seeing evidence of this, with several companies making high-profile announcements about pension contributions in excess of a billion dollars.

Major pension stories for 2011 include:

Contributions deferred to 2012 and beyond despite expectations for record contributions in 2011. While the $55.1 billion in contributions during 2011 was significantly greater than most prior years, the contribution total was $5.2 billion lower than the record level of $60.3 billion set during 2010. According to footnote disclosures and press releases, many companies have chosen to defer their pension contributions to 2012, and at least 10 companies have already disclosed to investors contributions in excess of a billion dollars.

Assets underperform expectations. The record growth in liabilities (9.3% over 2011) drowned out the 5.9% investment return for the year. These 100 companies had set an expectation that 2011 investment returns would be 7.8% on average.

Record pension expense. The decline in discount rates drove record levels of pension expense. These 100 companies faced a $38.3 billion charge to earnings, $7.8 billion higher than the $30.5 billion in 2010. The prospects for 2012 are even more severe: Given the record-low discount rates, we estimate that 2012 pension expense will increase $16 billion, resulting in a record $54 billion charge to corporate earnings.

Reduced reliance on equities and increased reliance on fixed income. Between 2010 and 2011, the percentage of pension plan assets invested in equities decreased from approximately 43.8% to 38.1%, while fixed-income allocations increased from 36.4% to 41.4%. For the first time in the history of the Milliman study, the allocation to fixed income exceeded the allocation to equities. This shift reflects the strong outperformance of fixed income over equities in 2011. It also reveals an emphasis on derisking by these 100 companies. Plans pursuing liability-driven investment strategies typically reduce their exposures to equities, increasing their allocation to fixed income, and lengthening the duration of fixed-income assets to more closely match their liabilities.

Expectations for 2012 tempered by record pension funding deficit. With the Federal Reserve indicating its intention to keep interest rates low through 2014, pension liabilities will remain high, as will the deficit. Companies that deferred contributions may increase contributions significantly in 2012.

Here is coverage from Bloomberg. Here is coverage from Dow Jones. Here is coverage from the Wall Street Journal. Here is coverage from Reuters. Here is coverage from Business insurance.

To browse these and other stories, check out our Storify summary of Pension Funding Study coverage.

CNBC’s “Fast Money” interviewed John Ehrhardt yesterday, with a focus on what the interest-rate-driven pension funding deficit means for corporate pension contributions. The interview begins about two minutes in:

Here is a key quote from Ehrhardt’s interview:

“Record low interest rates result in historically high liabilities and the only remaining lever may be employer contributions.”

You can also see the interview here.

In 2010, the 100 largest corporate pensions made record contributions to their pension plans, according to the 2011 Milliman Pension Funding Study. On January 25, we saw the first signs of our forecasts that 2011 and 2012 would be record years for these pensions. Two announcements in particular caught our eye:

• Boeing announced it will contribute $1.5 billion to its pensions in 2012
• Verizon announced it would triple its pension contribution in 2012

We will not be surprised when other large employers with defined benefit pension plans make these announcements in this 2012 earnings report season.

We’ll cover these contributions in more detail in the 2012 Milliman Pension Funding Index, which is due out in late March.

UPDATE: The pension contribution announcements keep coming:

• Jan. 26: AT&T contributed $1 billion to its pension plan in the 4th quarter
• Jan. 26: Raytheon, Lockheed Martin to add billions to pension plans
• Jan. 27: Ford contributes $3.5 billion to pension
• Jan. 27: UPS contributes $827 million to its pension plan
• Jan. 27: Honeywell faces “substantial pension-related costs”

The 2011 Pension Funded Study includes analysis of asset allocation. In 2010, the percentage of pension plan assets invested in equities decreased from approximately 45% to 44%.

Meanwhile the fixed income allocations were unchanged at 36%.

The allocation to other investments increased from 19% to 20% during 2010. The minor increase to other asset classes reflects, in part, greater diversification of portfolios to help reduce funded status volatility.

We believe that companies should consider employing dynamic investment policy strategies for de-risking their plans as they move from underfunded levels to fully funded levels, reducing their equity allocations and increasing liability-matched fixed income allocations.

The chart below, which many of you have seen before, depicts the quarterly pension funded status over the last 10 years. If you click on the chart you’ll go to an animated version that includes an audio explanation (by yours truly) of this tumultuous 10-year period. Check it out:

We blogged yesterday about the record pension contributions by the Milliman 100 companies, which are measured in Milliman’s annual Pension Funding Study. Coverage of the study in aiCIO helps put these contributions in perspective.

“We were surprised by the level of employer contributions, which turned a decline in funded status into an improvement in funded status,” John W. Ehrhardt, the firm’s principal, consulting actuary, and co-author of the Milliman 100 Pension Funding Index, told aiCIO. “Companies are being conservative in their projections, spurred by the combined effects of asset losses in 2008 and low interest rates that have driven pension funding requirements up, likely to continue in 2011,” he said.

See additional coverage of the study in:

• The Wall Street Journal
• Plan Sponsor
• The Big Fat Finance Blog
• Treasury and Risk

The Milliman Pension Funding Study, launched yesterday, indicates the employers that sponsor the 100-largest corporate pensions contributed a record $59.4 billion to these plans in 2010. Here is the historical record of pension expense and contributions.

The 11th annual Milliman Pension Funding Study is now available. In 2011, the 100 corporate pensions measured by this study saw a slight improvement in funded status. While assets performed well in 2010–a 12.8% return and a $115 billion improvement–they were counteracted by a liability increase of 7.7% (resulting in a $103 increase in the projected benefit obligation). These competing dynamics are illustrated in the plan asset and liability graph.

The full study is available here. Business Insurance’s coverage is available here.