Milliman: Higher discount rate fuels November cut in corporate pension deficit

A rise in the discount rate in November helped decrease the aggregate deficit of the 100 largest U.S. corporate pension plans studied by Milliman, while their combined funded status improved to 74%, from 72.6% at the end of October.

The discount rate increased nine basis points to 4.05%, and the aggregate deficit decreased $28 billion to $466 billion, according to Milliman's monthly funded status report.

Assets increased a modest $5 billion last month because of a 0.59% investment gain. Assets have returned 8.35% year-to-date Nov. 30, but over 12 months, the aggregate deficit has increased $174 billion despite an 11.6% investment return.

“If you need an illustration of how substantially interest rates are moving funded status, consider that through November these pensions have exceeded their expected annual return,” said John Ehrhardt, principal and consulting actuary at Milliman and co-author of the report, in a news release. “If they hold onto these gains through December, it will be the third such year out of the last four. And yet we're still dealing with near-record deficits. It's all about rates, and calendar year-end funded status will depend largely on where the discount rate ends up as of Dec. 31.”

Pension liabilities were $1.793 trillion at the end of November, while pension assets increased to an aggregate $1.327 trillion.

Mr. Ehrhardt was not available for more information by press time.