Milliman has released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. Despite strong investment returns of 0.84%, in April the deficit for these pension plans increased from $247 billion to $257 billion, the result of a decrease in the benchmark corporate bond rates used to value pension liabilities. The funded ratio for these pensions fell from 85.3% to 84.9% over the same time period.
Tracking these pensions lately has been like watching a game of ping pong. Robust investment returns are in a rally with interest rates, and in this metaphor we’re all waiting on interest rates to advance the game.
Looking forward, under an optimistic forecast with rising interest rates (reaching 4.28% by the end of 2017 and 4.88% by the end of 2018) and asset gains (11.0% annual returns), the funded ratio would climb to 93% by the end of 2017 and 107% by the end of 2018. Under a pessimistic forecast (3.48% discount rate at the end of 2017 and 2.88% by the end of 2018 and 3.0% annual returns), the funded ratio would decline to 80% by the end of 2017 and 73% by the end of 2018.