With equity markets down over 7% in the first three weeks of 2016, pension plans are bracing themselves for an unstable year with regards to their funding. Beyond asset volatility, pension plan sponsors need to be wary of increasing PBGC premiums again in 2016 as well as additional expected changes in mortality assumptions from the Society of Actuaries, both of which have tended to work against improvements in the funded status. More than ever, a plan should be engaging in active dialog with their consultant and actuary to evaluate the impact of these various costs as well as considering plan de-risking measures such as lump sum windows. Contribution policy will take on a more important role, as assets in a balanced portfolio could be expected to return only around 6% over the longer term. Plans should look beyond actuarial reporting, which allows plans to value liabilities at an inflated 25-year average interest rate, and ask actuaries to provide liability valuation and projections at termination costs.
*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.