Jul 10, 2012 --- Plunging discount rates drove up pension liabilities
in June, swamping asset improvement and capping a bad second quarter. ---
Milliman’s Pension Funding
Index, which consists of 100 of the nation’s largest defined benefit pension
plans found that corporate pensions in June experienced a $57 billion decrease
in funded status based on a $77 billion increase in the pension benefit
obligation (PBO) and a $20 billion increase in asset value. The $57 billion
decrease in funded status pairs with the combined April and May decreases of
$129 billion, increasing the funding deficit by $186 billion during the second
“With the help of the lowest
discount rate in the 12-year history of our study, corporate pensions last
month saw their funding deficit increase to a near-record $415 billion,” said
John Ehrhardt, co-author of the Milliman Pension Funding Study. “This is the
second worst deficit we’ve seen.”
In June, the discount rate used to
calculate pension liabilities fell from 4.56% to 4.32%, pushing up the PBO to
$1.698 trillion at the end of the month. The overall asset value for these 100
pensions increased from $1.263 trillion to $1.283 trillion.
Looking forward, if these 100
pensions were to achieve their expected 7.8% median asset return and if the
current discount rate of 4.32% were to be maintained throughout 2012 and 2013,
these pensions would improve the pension funded ratio from 75.6% to 77.4% by
the end of 2012 and to 82.0% by the end of 2013.
The results of the Milliman 100
Pension Funding Index were based on the actual pension plan accounting
information disclosed in the footnotes to the companies' annual reports for the
preceding fiscal year and for previous fiscal years.
To view the study, click here.