While the corporate discount rate did not change much over the first quarter (remaining close to 3.96%), asset returns helped pension funding improve more significantly. Pension assets returned 3.8% over the quarter, resulting in a funded percentage of 85.3% (an increase of 2%) at the end of March, according to the Milliman 100 Pension Funding Index survey of the 100 largest corporate pension plans. The pension liability discount rate ended the quarter where it started, at 3.96%.
If the discount rate stays around current levels and pension assets continue to appreciate at an annual 7.0% expected return (typically assumed by defined benefit plans in the survey), Milliman estimates that this funded status could rise to 87% by the end of 2017.
*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.