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Corporate Pension Funded Status Improves

The funded status of the 100 largest U.S. corporate pension plans continued to improve to 92.8% by the end of the second quarter. Higher liability discount rates caused the funded status to increase from 90.6% at the end of the previous quarter, according to the July 2018 Milliman 100 Pension Funding Index survey. The June discount rate from the survey was 4.12%, which was 21 basis points higher than the March 2018 level. Pension assets marginally impacted the funded status, rising about 0.61% over the quarter.

FTSE Pension Liability Index & Milliman 100 Pension Funding IndexAt the beginning of 2018, the survey funded status was 87.6% and the liability discount rate was 3.53%. Generally, higher interest rates have been the primary contributor to
the improvement in pension funding year to date, as asset returns for the U.S. corporations in the survey were negative (- 0.23%) since the start of the year.

So far in 2018, many pension plans have fallen far short of the expected median return assumption of 6.8%. However, if expected returns could be achieved going forward, and current contribution levels were maintained, at the current discount rate the funded status would be expected to rise to 98.3% by the end of 2019, according to Milliman.