Rising interest rates in May drive $95 billion
improvement in corporate pension funded status

By Milliman Inc.
June 6, 2013

Milliman, Inc., a premier global consulting and actuarial firm, today released the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest corporate defined benefit pension plans. In May, these pension plans experienced a $95 billion increase in funded status, primarily based on a $101 billion decrease in the pension benefit obligation (PBO). There was a small offsetting decrease in assets. [EXPAND Read more]

“After years of talking about the insidious effect of low interest rates on pension funded status, we finally see a long-awaited spike in interest rates and the resulting massive deficit reduction,” said John Ehrhardt, co-author of the Milliman Pension Funding Study. “This is the biggest interest rate increase since 2009 and one of the more significant increases in the history of our study.”

In May, the discount rate used to calculate pension liabilities increased from 3.98% to 4.41%, decreasing the PBO from $1.711 trillion to $1.610 trillion by the end of the month. The overall asset value for these 100 pension plans decreased slightly from $1.389 trillion to $1.384 trillion.

Looking forward, if these 100 pension plans were to achieve their expected 7.5% median asset return and if the current discount rate of 4.41% were to be maintained throughout 2013 and 2014, their pension funded ratio would improve from 86.0% to 88.7% by the end of 2013 and to 94.0% by the end of 2014. [/EXPAND]