Milliman today released the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest corporate defined benefit (DB) 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.