Milliman: Top 100 corporate pension plans' deficit climbs to $498 billion in October

The aggregate deficit of the 100 largest U.S. corporate pension plans increased $45 billion to $498 billion at the end of October, the second-highest level in the 12-year history of Milliman's monthly funded status report.

The discount rate decreased 12 basis points to 3.96%, the second-lowest reading, resulting in a $43 billion increase in the pension benefit obligation, while an aggregate investment return of –0.01% resulted in another $2 billion drop.

The aggregate funded status decreased to 72.6%, from 74.5% at the end of September. Pension liabilities were $1.821 trillion at the end of October, while pension assets decreased to an aggregate $1.322 trillion.

The pension deficit has increased in five of the last seven months, increasing the funded status gap by a cumulative $270 billion.

“It's the same old story. It's all about the interest rates,” said John Ehrhardt, principal and consulting actuary at Milliman and co-author of the report, in a telephone interview. “There's not much hope for interest rates to rise, so liabilities will stay high.”

The only two ways to combat low interest rates are asset returns and pension contributions, Mr. Ehrhardt said. While the re-election of President Barack Obama removes one uncertainty to the markets, the looming fiscal cliff will result in continued volatility and uncertainty, making strong asset returns difficult to come by, he added.

“One cloud looming over everything is the fiscal cliff,” Mr. Ehrhardt said. “There has to be some sharing of the pain.”

Mr. Ehrhardt recommends that companies continue to make full pension contributions, regardless of the funding relief provided by the federal highway bill enacted in July, and employ equity hedging strategies to protect the funded status of their pension plans.