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Milliman: Corporate pension funded status drops by $5B in July

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The balance sheets for the nation’s largest defined benefit pension plans deteriorated in July, according to new research.

Milliman Inc., a global consulting and actuarial firm disclosed today the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest defined benefit pension plans. In July, these plans experienced a $3 billion decrease in pension liabilities and an $8 billion decrease in asset value, resulting in a $5 billion increase in the pension funded status deficit.

“For months it’s been interest rates driving up the deficit, but in July the rates cooperated and it was instead poor financial market performance negatively impacting funded status,” says John Ehrhardt, co-author of the Milliman 100 Pension Funding Index. “We’ve seen the deficit increase by more than $70 billion so far in 2014.”

This month’s study includes perspective on how the Highway and Transportation Funding Act of 2014 (HATFA) may affect pension contributions next year.

Looking forward, if the Milliman 100 pension plans were to achieve the expected 7.4 percent median asset return for their pension portfolios, and if the current discount rate of 4.10 percent were maintained, funded status would improve, with the funded status deficit shrinking to $237 billion (86.1 percent funded ratio) by the end of 2014 and to $202 billion (88.2 percent funded ratio) by the end of 2015, the Milliman report states.

Click here to view complete study.