January Brings Corporate Pension Tumble

Large corporate pension plans lost asset values and gained liabilities during January, resulting in a decrease in overall funded status.

Milliman, Inc., a global consulting and actuarial firm, released the results of its most recent pension funding index survey, which tracks 100 of the nation’s largest defined benefit (DB) pension plans. In January, following a year of major improvement, these plans experienced a $7 billion decrease in asset values and a $60 billion increase in pension liabilities, resulting in a $67 billion decline in pension funded status. This decrease follows a year that saw a $318 billion in funded status improvement.

After the month’s losses, Milliman estimates the aggregate funded status of the 100 largest corporate pensions stands around 91.2%. 

“After a win-win year that combined market growth and cooperative interest rates, we’re back to the lose-lose ways where assets fall and liabilities increase,” says John Ehrhardt, co-author of the Milliman Pension Funding Index, based in Seattle. “Hopefully this is just a speed bump on the way to 100% funded status. Unfortunately we’re not quite as well positioned to achieve full funded status now as we were at the end of the year.”

Ehrhardt is quick to point out that forward-looking results from the survey are more positive. In fact, if the Milliman 100 pension plans achieve the expected 7.5% median asset return for their pension portfolios, and if the current discount rate of 4.55% is maintained, then funded status would improve in coming months. Should that occur, the funded status deficit would shrink to $62 billion (96.1% funded ratio) by the end of 2014 and turn into a surplus of $29 billion (101.8% funded ratio) by the end of 2015.

The results of the index are based on the actual pension plan accounting information disclosed in the footnotes of the surveyed companies’ annual financial reporting. In addition to providing the financial information on the funded status of U.S. qualified pension plans, the footnotes may also include figures for the companies’ nonqualified and foreign plans, both of which are often unfunded or subject to funding standards different from those for U.S. qualified pension plans.

The full results of the index, along with more information on the survey methodology, can be found here. Regular updates of Milliman’s pension funding analysis can be obtaining by emailing pensionfunding@milliman.com.