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Pension funding deficit grows by $100B-plus in 2014 [chart]

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Corporate pensions fell further into the red in December, according to a new report.

Global consulting and actuarial firm Milliman discloses this finding in a December update on Pension Funding Index. The PFI consists of 100 of the nation’s largest defined benefit pension plans.

Milliman discloses that corporate defined benefit plans experienced a $19 billion increase in pension liabilities and a $3 billion decrease in asset value, resulting in a $22 billion increase in the pension funded status deficit and a funded ratio of 83.6 percent. For the year, despite market returns of $81 billion, pensions suffered a $105 billion increase in the pension funded status deficit. Fueling the rise was a $186 billion increase in liabilities, as interest rates fell to a historic low at year-end.

“What a difference a year makes,” says John Ehrhardt, co-author of the Milliman 100 Pension Funding Index. “Last year at this time we were celebrating a historic rally for these pensions, thanks to — surprise surprise — cooperative interest rates. This year it’s the opposite story, with interest rates falling to 3.80 percent, the lowest rate we’ve ever seen in the 14-year history of this study. With rates this low, the liability increase for these pensions outstripped strong asset performance by more than $100 billion.”

Looking forward, if the Milliman 100 pension plans were to achieve an expected 7.4 percent median asset return for their pension portfolios, and if the current discount rate of 3.80 percent were maintained, funded status would improve, with the funded status deficit shrinking to $255 billion (85.7 percent funded ratio) by the end of 2015 and to $217 billion (87.9 percent funded ratio) by the end of 2016. This forecast assumes 2014 aggregate contributions of $44 billion and 2015 and 2016 aggregate contributions of $31 billion.

The following recaps highlights from the report, including changes to aggregate market value (MV), pension benefit obligations (PBO), funded status and funded percentage.


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