The 100 largest U.S. corporate defined benefit plans saw their funding ratios drop slightly in March due to adjustments due to flat investment returns and a slight drop in discount rates, according to the latest Milliman 100 Pension Funding Index.
The funding ratio dropped to 84% from 84.3% the previous month, thanks to a nearly flat investment return of 0.29%, along with a two-basis-point decrease in the monthly discount rate to 4.3% from 4.32%.
Assets remained at $1.399 trillion, the same as February, while the projected benefit obligation increased to $1.665 trillion at the end of March from $1.66 trillion the previous month.
“Interest rates have gone down. We hit a recent high; back in September it was 4.8, in November it was 4.78% and now we’re down to 4.3%, so we’re down 50 basis points and that’s bumped up the liabilities and the assets have been sort of flat,” said John Ehrhardt, principal and consulting actuary at Milliman.
The numbers also reflect the annual update of Milliman 100 companies as a result of 10-K filing information included in the firm’s 2014 Pension Funding Study.
The new number reflects lower actual employer contributions than projected, Mr. Ehrhardt said, as well as lower-than-expected discount rates.
As a result, there was an adjustment in Milliman’s year-end estimates of the companies’ funding ratio to 88.3% as of Dec. 31, down from the 95.2% figure previously estimated in the December pension funding index. The numbers for January and February were adjusted as a result as well. The estimated funding ratios for January and February, 91.2% and 91.8%, respectively, have been adjusted to 83.8% and 84.3%.
If the pension funds achieve a median 7.4% expected rate of return and the discount rate remains at the current 4.3%, the funding ratio would improve by year-end to 86.1%.