The deficit for the 100 largest US corporate pension plans dropped to $247 billion in March, from $275 billion, as their funded ratio rose to 85.3%, from February’s 83.8%, Milliman reports.
The improvement in the Milliman 100 pension funding index comes about as a result of strong asset returns as well as a rise in the discount rates these pension funds use to value their pension liabilities, which is tied to benchmark corporate bond rates, the Seattle-based actuarial consulting firm said.
“The first quarter of 2017 has seen the cumulative asset values of the Milliman 100 pension plans exceed expectations – increasing by $37 billion thanks to strong recurring investment returns – while discount rates are just shy of where they were at the beginning of the year,” according to Zorast Wadia, a Milliman principal. “Overall, funded status has increased by $33 billion during the quarter.”
For March, these corporate pension plans enjoyed an investment return of 1.13%, which boosted their asset values by $11 billion to $1.434 trillion. In addition, these plans saw their projected pension benefit obligation drop by $17 billion in March to $1.681 trillion, as their discount rates rose eight basis points to 3.96%.
Over the last 12 months, these pensions have enjoyed a return on assets of 8.78%, and these beneficial returns have led to an improvement in their deficit of $128 billion. Discount rates have moved up as well, from 3.78% as of March 2016, to the current 3.96%. Over the year, these corporate plans’ funded ratio has risen from 78.6% to the current 85.3%.
Milliman projects that if these plans attain their 7% expected asset return and maintain their current discount rate of 3.96% through 2017 and 2018, their funded status will improve. At the end of 2017, their pension deficit would drop to $217 billion, and their funded ratio would rise to 87%. By the end of 2018, Milliman anticipates a pension deficit of $173 billion, and a funded ratio of 89.7% for these 100 largest corporate pension plans.
In an optimistic scenario of rising interest rates and asset gains, their funded ratio could even rise to 95% by the end of 2017, and 108% at the end of 2018. And if Milliman’s pessimistic forecast plays out, these pension plans could see their funded ratio drop off to 80% by year end and 73% by the end of 2018.
Tags: deficit, discount rates, pension liabilities, Pension Plans