The funded status of 100 of the largest U.S. corporate pension plans increased to 91.9% in October from 91.5% the previous month, according to the latest Milliman 100 Pension Funding Index.
It is the highest reading in five years and continues a strong year-to-date performance that has seen the funded status improve by 14.7 percentage points.
Despite a modest $3 billion reduction in the overall pension deficit, October had the strongest investment return for the year at 2.36%. Assets were up $31 billion for the month, but liabilities also increased $28 billion as the discount rate decreased 13 basis points to 4.67%. The discount rate was still 71 basis points higher than it was a year earlier.
“Usually the discount rate drives the change in funded status,” said Zorast Wadia, principal, consulting actuary, in a telephone interview. “In this case, it didn't because of really strong asset performance.”
Mr. Wadia said the fact that discount rates have “stood their ground” is really the “story of the year.” The discount rate jumped 43 basis points to 4.41% in May and another 33 basis points in June. There has been very little movement since then, he said.
The overall pension deficit was $126 billion, a $392 billion improvement in the last 12 months. If the discount rate remains the same and plans achieve a 7.5% investment return, Milliman predicts the funded status will be 92.7% at the end of the year and 98.2% at the end of 2014.
Total assets were $1.429 trillion, compared to $1.556 trillion in liabilities.
