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Milliman analysis: $33 billion pension funded status improvement in November
Discount rates climb back above 4%--will they stay there?
By: PR Newswire
Dec. 6, 2012 11:23 AM
SEATTLE, Dec. 6, 2012 /PRNewswire/ -- Milliman, Inc., a premier global consulting and actuarial firm, today released the results of its latest Pension Funding Index, which consists of 100 of the nation's largest corporate defined benefit pension plans. In November, these pensions experienced a $33 billion increase in funded status based on a $28 billion decrease in the pension benefit obligation (PBO) and a $5 billion increase in assets. The $33 billion increase begins to chip away at near-record funded status deficits that have persisted throughout the last two quarters. The deficit at the end of November sat at $466 billion.
"The interest rates that determine pension funding liabilities climbed back above 4% in November, a welcome development for plan sponsors," said John Ehrhardt, co-author of the Milliman Pension Funding Study. "If you need an illustration of how substantially interest rates are moving funded status, consider that through November these pensions have exceeded their expected annual return. If they hold onto these gains through December it will be the third such year out of the last four. And yet we're still dealing with near-record deficits. It's all about rates, and calendar-year-end funded status will depend largely on where the discount rate ends up as of December 31."
In November, the discount rate used to calculate pension liabilities increased from 3.96% to 4.05%, decreasing the PBO to $1.793 trillion at the end of the month. The overall asset value for these 100 pensions increased from $1.322 trillion to $1.327 trillion.
Looking forward, if these 100 pensions were to achieve their expected 7.8% median asset return and if the current discount rate of 4.05% were to be maintained throughout 2013 and 2014, these pensions would improve the pension funded ratio from 74.0% to 78.7% by the end of 2013 and to 83.3% by the end of 2014.
About the Milliman 100 Pension Funding Index
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. 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 results do not represent the funded status of the companies' U.S. qualified pension plans under ERISA.
SOURCE Milliman, Inc.
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