The funded status of U.S corporate defined benefit plans was down for the fourth quarter and 12 months ended Dec. 31, said two new reports from Milliman and UBS Global Asset Management.
The funded status of the 100 largest U.S. corporate defined benefit plans dropped to 83.6% at the end of December, down 150 basis points from Sept. 30 and down 470 basis points year-over-year as liabilities rose faster than assets, the Milliman 100 Pension Funding index shows.
The discount rate fell 88 basis points in 2014, outpacing investment returns of 9.5% and causing funding ratios to plummet.
The discount rate ended the year at 3.8%, the lowest level on record since Milliman's study began 14 years ago and eliminated the funding gains experienced in 2013, said Zorast Wadia, principal, consulting actuary and co-author of the Milliman report, in a telephone interview.
“All of the gains that were achieved in 2013 were given back,” Mr. Wadia said. “We're looking more like year-end 2012” when the funded status was 77.2%.
If the pension funds achieve a median 7.4% return and the discount rate remains at the current 3.8%, the funded status would improve to 85.7% by the end of 2015 and 87.9% by the end of 2016, according to Milliman.
Mr. Wadia said the Society of Actuaries' strengthened mortality assumptions, which could increase liabilities by 8%, were not factored into Milliman's estimates.
Separately, UBS Global Asset Management found that the funding ratio of the typical U.S. corporate defined benefit plan dropped to 87% as of Dec. 31 from 89% as of Sept. 30.
Falling rates caused liabilities to increase 5% in the fourth quarter, outpacing investments returns of 2.5%.
“After a 17 (percentage-point) funding ratio improvement in 2013, the 8 (percentage-point) decline in 2014 highlights the importance of plan sponsors adhering to their derisking program and thereby minimizing the volatility of their funded status,” UBS said in a news release.