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Rising Interest Rates Stand in Way of Pension Funding

Pension liabilities rose in the second quarter, as the pension liability discount rate decreased 38 basis points from the previous quarter to 2.74%. The Milliman 100 Pension Funding Index Survey* reported the estimated pension funding for the 100 largest corporate defined benefit plans decreased to 97.2% from a revised 98.2% at the end of the first quarter of 2021.

Partially offsetting some of the increase in the discount rate, pension assets improved 3.9% over the quarter, as domestic equity markets continued to reach new highs and the U.S. recovery exceeded expectations.

Over the past year, pension plans have seen a dramatic improvement in their funded status. The Index sat at 84.6% a year ago at the end of June 2020.

Milliman noted that if interest rates were to hold around current levels and the plans in the survey achieve at least 6.2% expected return for the entire year, the Pension Funding Index could rise to 98.7% by the end of 2021.

*Source: Milliman Pension Funding Index Survey, July 12, 2021, and Society of Actuaries.