Milliman today released the results of its latest Pension Funding Index, which analyzes the 100 largest U.S. corporate pension plans. In September, these pension plans experienced a $28 billion decrease in funded status based on a $19 billion decrease in asset values and a $9 billion increase in pension liabilities. The funded status for these pensions decreased from 83.3% to 81.7%.
The calendar year began with strong equity performance that seemed so promising, and yet here we are looking at an overall decline in equities for the year. It will take a massive rally in the fourth quarter for these 100 pensions to sniff their annual expected return of 7.3%.
Looking forward, under an optimistic forecast with rising interest rates (reaching 4.34% by the end of 2015 and 4.94% by the end of 2016) and asset gains (11.3% annual returns), the funded ratio would climb to 85% by the end of 2015 and 97% by the end of 2016. Under a pessimistic forecast (4.04% discount rate at the end of 2015 and 3.44% by the end of 2016 and 3.3% annual returns), the funded ratio would decline to 80% by the end of 2015 and 73% by the end of 2016.