U.S. Corporate Pensions End 2010 With 'Optimistic Close:' Milliman

Despite falling funded status, DB plans end year on 'high note'

While funded status for corporate pensions was down at year-end 2010, the Milliman 100 Pension Funding Index was optimistic about pensions' future.

The Index, which is released annually and studies the 100 largest defined-benefit pension plans sponsored by U.S. public companies, found "historically low interest rates drove the funded status down by $49 billion" last year, and the increase in liabilities of $99 billion was almost double that of assets ($50 billion).

Source: Milliman, Inc. 2011


At the end of March 2010, according to the Index, funded status was 84.3%, but began to "rapidly deteriorate" until it reached a 10-year low in August at 70.1%. Between August and December, the investment return was 8.3%. Discount rates rose 54 basis points to 5.32%, raising the funded status to 79.8% as of Dec. 31, 2010.

Despite a funding decrease of $49 billion in 2010, bringing the year-end funded status deficit to $291 billion, in December, funded status rose $44 billion on strong investment performance and increased corporate bond interest rates. The funded ratio rose over two percentage points between November and December to 79.8%. And while liabilities were up for 2010, they fell by $20 billion in December.

SourceMilliman, Inc. 2011


Milliman projects that funded status could increase in 2011, cutting the deficit to $261 billion and increasing the funded ratio to 82%, if Index companies "achieve their 8.1% median 2010 asset return" and if the discount rate remains 5.32% through 2011. By 2012, the deficit could fall to $208 billion and funded ratio could reach 85.9% under the same circumstances.

The Index notes that an "optimistic forecast" which assumes interest rates would reach 6.52% and 12.1% annual returns by the end of 2012 finds the funded ratio could reach 107% by the end of 2012. A "pessimistic forecast," with a 4.12% discount rate and 4.1% annual returns at the end of 2012, finds the funded ratio would fall to 68% by the end of 2012.

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