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

“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.