Big Companies' Pension-Funded Status Up $25 Billion in June: Milliman

Rising interest rates offset $10 billion investment loss from corporate pension plans

Corporate pensions’ funded status improved by $25 billion in June, according to Milliman Inc., on rising interest rates.

In spite of a $10 billion investment loss, the Pension Funding Index, which analyzes the 100 largest corporate defined-benefit plans, found a $35 billion liability reduction actually reduced the deficit to $186 billion from $211 billion at the end of May 2011.

"Normally when assets decline we're in for a fall in pension funded status, but not this month," John Ehrhardt, co-author of the Milliman Pension Funding Study, said in a press release. "In fact it's a rare combination: a funded status improvement driven by liabilities and in spite of a decline in assets.”

Ehrhardt noted that in 11 years of tracking pension data, that combination has only happened in a total of 10 months.

For the three months prior to June, investments in corporate pensions gained over 1%, but the funded status fell $14 billion on a drop in net interest. Assets gained 15% over the last 12 months, and funded status has improved by $182 billion.

Pensions chartMilliman notes that if the Index companies achieve an 8% median asset return, and maintain a discount rate of 5.43% through 2013, the pension deficit could fall to $34 billion by the end of 2013.

A more optimistic forecast that assumes asset gains of 12% and interest rates of nearly 7% by the end of 2013 found the funded ratio would climb to 110% by the end of 2012 and 129% by the end of 2013. Milliman’s negative outlook predicted the funded ratio could fall to 78% by the end of 2012 and 72% by the end of 2013 if annual returns are just 4% and the discount rate falls to 4% by the end of 2013.

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