Although pension assets experienced losses during the first quarter, a rise in interest rates caused the funded status of the 100 largest U.S. corporate pension plans to improve, according to the March 2018 Milliman 100 Pension Funding Index survey.
Higher interest rates followed renewed concerns about inflation and the pace of Federal Reserve Bank rate increases. Consequently, pension liabilities declined by about 5.0% in the first two months of the year, as the liability discount rate increased to 3.95%. During this same time, assets declined by only 1.2% while the funded status improved to 87.7%. At the end of 2017, the corporate bond discount rate used to value pension liabilities was 3.53%, and the funded ratio was
Milliman also noted if defined benefit plans were to achieve the median plan expected return of 7%, and the liability discount rate remained at 3.95% for the remainder of 2018, the funded ratio would continue to increase to around 90% by the end of 2018.
*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.