The combined funded status of the 100 largest U.S. corporate defined benefit pension plans studied by Milliman increased $30.4 billion to 74.2%, in January, from 72.4% the previous month.
The pension plans' combined deficit was $434 billion, a 6.5% improvement from the end of December, which at $464.4 billion was the largest deficit in the 12-year history of the Milliman 100 Pension Funding Index.
Strong investment performance, coupled with a flat discount rate, allowed the asset value of the pension plans to increase to $1.25 trillion last month from $1.22 trillion at the end of December. The projected benefit obligation remained at $1.685 trillion as the discount rate increased to 4.26% from 4.25%.
“Interest rates actually cooperated (in January) — or at least they didn't go down,” John Ehrhardt, Milliman principal, consulting actuary and co-author of the study, said in a news release. “The lack of interest rate movement allowed these pensions to take advantage of a 2.49% investment gain for the month and recoup some of the funding loss that characterized 2011. With the (Federal Reserve) committing to low rates through the end of 2014, we're going to need more months like this if we are going to fill the pension funding gap.”
If the top 100 corporate pension plans achieve an 8% median asset return over the next two years and the discount rate of 4.26% is maintained through 2013, the pension funding gap would be 79% by the end of 2012 and 84.4% by the end of 2013, according to Milliman.
Mr. Ehrhardt was not available for additional comment by press time.