Pension Funding Index January 2017

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By Charles J. Clark, Zorast Wadia | 12 January 2017

Interest rate declines characterized 2016. At the end of August, the discount rate reached 3.32%, the lowest in the 16 years of the Milliman 100 Pension Funding Index (PFI).

The year-end 2016 funded ratio was 81.0%, down from 81.7% at the end of 2015. While plan assets were up $17 billion for the year, plan liabilities were up $36 billion on account of declining interest rates.

During 2016, the cumulative asset gain was 6.17% while the cumulative liability loss was 5.88%. The $19 billion funded status improvement during 2016 resulted in a year-end funded status deficit of $326 billion.

In December, the funded status of 100 largest corporate defined benefit pension plans improved by $13 billion as measured by the PFI. The deficit fell to $326 billion from a deficit of $339 billion at the end of November. The funded status improvement in December was due to robust investment returns of 1.17%. As of December 31, the funded ratio improved to 81.0% from 80.3% at the end of November.

December’s $11 billion increase in market value brings the Milliman 100 PFI asset value to $1.392 trillion at year-end 2016. The Milliman 100 PFI liability value decreased to $1.718 trillion at the end of December.

If the Milliman 100 PFI companies were to achieve the expected 7.2% median asset return and if the current discount rate of 3.99% were maintained during years 2017 and 2018, we forecast the funded status of the surveyed plans would increase. This would result in a projected pension deficit of $294 billion by the end of 2017 and a projected pension deficit of $258 billion by the end of 2018.