The funded status of 100 of the largest U.S. corporate pension plans jumped nearly five percentage points in May despite a negative month for investment returns, according to the latest Milliman 100 Pension Funding Index.
The funded status increased to 86% — the highest level since July 2011 — from 81.2%. It was the largest one-month increase since October 2010.
The increase was entirely due to the discount rate increase of 43 basis points to 4.41% as the aggregate pension deficit decreased $95 billion, the second-largest one-month deficit improvement in the 14-year history of the PFI, said John Ehrhardt, principal and consulting actuary at Milliman and co-author of the report. May also saw the largest interest rate increase since 2009 and one of the more significant rate increases in the history of the study, Mr. Ehrhardt added.
Year-to-date May 31, the pension deficit has been reduced by $165 billion.
“If we can hold on to that, it will be the best year of the 14. It's a welcome thing,” Mr. Ehrhardt said in a telephone interview.
Assets were actually down 0.27% for the month, marking the first month of negative returns this year. Total assets decreased $5 billion to $1.38 trillion, while liabilities decreased to $1.61 trillion from $1.711 trillion.
Assets are up 5.33% year to date May 31 and 11.42% over the last 12 months. The funded status has increased 8.4 percentage points in the last year.
If the current discount rate remained unchanged, Milliman projects the funded status will be 88.7% by the end of the year and 94% at the end of 2014.
A rise in interest rates will also result in better annuity prices for companies looking to terminate their plans as the end game, Mr. Ehrhardt said.
“If interest rate movement continues, 2014 could be the year of plan terminations,” he said.