The funded status of the 100 largest U.S. corporate pension plans fell to 84% in August, down from 84.8% in July, said the latest Milliman 100 Pension Funding index.
However, during the same period, the funding ratio of S&P 500 companies with defined benefit plans ticked up slightly to 88.4% at the end of August compared to 88.3% at the end of July, said Aon Hewitt.
Zorast Wadia, principal, consulting actuary and co-author of the Milliman report, said the discount rate fell to 3.89% in August, the lowest level on record, which was down from 4.1% at the end of July. The discount rate drop drove liabilities to $1.754 trillion from $1.708 trillion at the end of July.
During the same period, investments returned 1.92%, the second best monthly return of the year, Mr. Wadia said, surpassed only by February's 2.3% return. Assets rose to $1.47 trillion in August from $1.45 trillion in July.
If the pension funds achieve a median 7.4% annual return and the discount rate remains at the current 3.89%, the funded status would increase to 84.9% by the year's end, still a 3.4-percentage point drop from 88.3% in December 2013, according to Milliman.
“The reason (the funded status) hasn't fallen more (year-to-date) is because of positive asset growth,” Mr. Wadia said. Assets have returned 7.5% year to date Aug. 31.
Separately, Aon Hewitt said the aggregate funding ratio of S&P 500 companies remained relatively flat at the end of August as liabilities offset investment returns. In August, the discount rate dropped to 4.12% from 4.32%, driving liabilities upward, Aon Hewitt said.
Funding ratio volatility was biggest takeaway in August, said Joe McDonald, senior partner and contributor to the Aon Hewitt report.
Throughout August, the funded status experienced significant volatility, increasing as much as 0.8 of a percentage point and decreasing as much as 0.7 of a percentage point before landing at 88.4%, according to Aon Hewitt.
Aon Hewitt does daily estimates of the funding ratio for the 359 S&P 500 companies with DB plans.