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Corporate Pension Funded Status Higher over the Quarter and the Year

Although discount rates dipped mid-quarter, strong asset returns boosted the corporate funded status at the end of the third quarter. The Milliman 100 Pension Funding Index, which is derived from a survey of the 100 largest corporate pension plans, rose from 83.5% at the end of June to 84.3% at the end of September 2017. The corporate bond discount rate used to value pension liabilities declined to 3.69% from 3.74% at the end of the second quarter. On the year, the pension funded status also improved from 83.3% at the end of 2016. While the discount rate at that time was about 4.0%, pension assets returned 8.34% year-to-date, to more than offset the decrease in the liability discount rate.

Citi Pension Liability Index & Milliman 100 Pension Funding IndexMilliman also projected the funded status to 2018. Assuming the discount rate stays around the current level and pension assets appreciate at an annual 7.0% expected return (which is the median asset return assumed by plans in their most recent survey), the estimated funded status could increase to 87.5% by the end of 2018. Milliman also presented an optimistic scenario; assuming the discount rate were to reach 4.44% by the end of 2018, and assuming plans achieve an exceptional 11.0% annual return, the Funding Index could increase to 101%.

*The Milliman Pension Funding Index is based on actual pension plan accounting information for the 100 largest defined benefit pension plans sponsored by U.S. public companies. The index is based on a ratio of the market value of assets compared to the projected benefit obligation (PBO), as a measure of the pension liabilities.