Corporate DB Funded Status Rises to 93.4% in July

Aggregate deficit falls $12 billion to $108 billion.

The funded ratio of the 100 largest US corporate defined benefit pension plans rose to 93.4% in July from 92.7% at the end of June, and 85.8% at the same time last year due to a strong investment performance during the month, according to consulting firm Milliman.

The aggregate deficit for the plans fell to $108 billion from $120 billion, while the market value of their assets increased $13 billion to $1.537 trillion from $1.524 trillion at the end of June due to a 1.15% investment gain for the month. The funded status improvement was partially offset by pension liability increases, which was a result of a small decrease in the benchmark corporate bond interest rates used to value pension liabilities.

The 93.4% funded ratio is the highest the Milliman 100 Pension Funding Index has reached since the fourth quarter of 2008, when discount rates were significantly higher than they are  today, according to Milliman.

For the 12 months to the end of July, the cumulative asset return for the pensions has been 5.4%, while the Milliman 100 PFI funded status deficit has improved by $138 billion during that time. The improvement in the funded status deficit has been attributed to discount rates having risen to 4.11% at the end of July from 3.71% at the same time last year.

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Milliman said that if the plans were to achieve the expected 6.8% median asset return as forecast in its 2018 pension funding study, and if the current discount rate of 4.11% were maintained during 2018 and 2019, the funded status of the surveyed plans would increase to 94.8% by the end of 2018, and 98.7% by the end of 2019.  The firm said this would result in a projected pension deficit of $85 billion by the end of 2018, and $21 billion by the end of 2019. For its forecast, Milliman assumed 2018 aggregate contributions of $48 billion, and 2019 aggregate contributions of $52 billion.

Milliman said that under an optimistic forecast with interest rates rising to 4.36% by the end of 2018 and 4.96% by the end of 2019, and annual asset gains of 10.8%, the funded ratio would climb to 99% by the end of 2018, and 115% by the end of 2019. However, under a pessimistic forecast with similar interest rate and asset movements (3.86% discount rate at the end of 2018 and 3.26% by the end of 2019, and 2.8% annual returns), the funded ratio would decline to 91% by the end of 2018, and 84% by the end of 2019.

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