The funded status of the 100 largest U.S. corporate defined benefit plans fell to 79.6% at the end of January, down 390 basis points from December, the Milliman 100 Pension Funding index shows.
Liabilities rose 5.7% to $1.876 trillion at the end of January, the result of a 42-basis-point drop in the discount rate to 3.38%, which offset positive investment returns of 1.07%.
“It’s pretty devastating news in terms of funding ratios when discount rates move like that,” said Zorast Wadia, principal, consulting actuary and co-author of the Milliman report, adding that January’s discount rate was the lowest on record since Milliman’s study began 15 years ago.
The 42-basis-point drop from December was also nearly half of the total drop experienced in 2014, he noted.
If the pension funds achieve a median 7.4% asset return and the discount rate remains at 3.38%, the funding ratio would increase by year-end to 81.5% and 83.7% by the end of 2016, Millman predicts.