The funded status of the 100 largest U.S. corporate defined benefit plans fell to 84.8% in October, down 30 basis points from the previous month, said the Milliman 100 Pension Funding index.
The funding drop was primarily the result of a 10-basis-point drop in the discount rate to 4%, which drove liabilities up, said John Ehrhardt, principal and consulting actuary at Milliman, in a telephone interview.
The estimated projected benefit obligation rose to $1.731 trillion in October, up from $1.709 trillion at the end of September, offsetting a $14 billion increase in the market value of assets.
Assets rose to $1.468 trillion in October, up from $1.454 trillion the previous month — a result of October investment returns of 1.25%.
If the pension funds achieve a median 7.4% return and the discount rate remains at the current 4%, the funded status would increase to 85.3% by the year's end, still a three-percentage-point drop from 88.3% at the end of December, Millman predicts.
“This year was all about interest rates,” Mr. Ehrhardt said. “The discount rate is down about 60 basis points this year.”
Funding ratios could also be affected by new mortality tables recently finalized by the Society of Actuaries, he said. The updated tables, which reflect an increase in life expectancy, could increase plan liabilities by 6% to 8%, lowering funding ratios, Milliman predicts. Mr. Ehrhardt expects most companies’ Dec. 31 financials will reflect the new mortality assumptions.
“Plan sponsors are going to need a lot of good news these next couple of months to offset the mortality improvement,” Mr. Ehrhardt said.