Milliman analysis: Rising rates reduce pension deficit by $34 billion
Discount rate remains below 4% but still drives improvement in August after four consecutive months of declines
SEATTLE, Sept. 10, 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 defined benefit pension plans. In August, these pensions experienced a $34 billion increase in funded status based on a $23 billion reduction in the pension benefit obligation (PBO) and an $11 billion asset improvement. The $34 billion increase in funded status follows four straight months of interest-rate driven deficit increases and leaves the pension funding deficit at $498 billion.
"After months of precipitous decline, it's good to see the deficit moving in the right direction, however modestly," said John Ehrhardt, co-author of the Milliman Pension Funding Study. "We're going to need continued interest rate increases, above average asset performance, and significant employer contributions in order to dig out of this hole."
In August, the discount rate used to calculate pension liabilities increased from 3.92% to 3.99%, pushing the PBO up to $1.808 trillion at the end of the month. The overall asset value for these 100 pensions increased from $1.298 trillion to $1.309 trillion.
Looking forward, if these 100 pensions were to achieve their expected 7.8% median asset return and if the current discount rate of 3.99% were to be maintained throughout 2012 and 2013, these pensions would improve the pension funded ratio from 72.4% to 73.6% by the end of 2012 and to 78.0% by the end of 2013.
Milliman is among the world's largest providers of actuarial and related products and services. The firm has consulting practices in healthcare, property & casualty insurance, life insurance and financial services, and employee benefits. Founded in 1947, Milliman is an independent firm with offices in major cities around the globe. For further information, visit milliman.com.
About the Milliman 100 Pension Funding Index
For the past 12 years, Milliman has conducted an annual study of the 100 largest defined benefit pension plans sponsored by U.S. public companies. The Milliman 100 Pension Funding Index projects the funded status for pension plans included in our study, reflecting the monthly impact of market returns and interest-rate changes on pension funded status, utilizing the actual reported asset values, liabilities, and asset allocations of the companies' pension plans.
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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